Sticky Corporates and SMEs: Blog Series Week 3

Customers are the most important piece of the transaction banking puzzle. Without them, we have no industry. So this week on our third stop on the “Tour de Transaction Banking,” I want to discuss KYC (know your customer). This concept is not just a demand from regulatory authorities, but it is also essential to ensure success in any bank’s transaction banking operation.

In the transaction banking space, banks have tried to serve a vast array of customer segments for years, but I would argue their approach has not served any more than one segment well.  Some banks have chosen to put their focus on large corporates and their global business, while other institutions have targeted the large regional enterprises. The stickiness of the relationship on the high end of the spectrum allows banks some freedom in how they operate; the more services and products a client uses, the harder it is to unwind the relationship and leave the bank. Also due to the size of the relationships, a dedicated banker is assigned to the account and the personal touch of the relationship is apparent.

More often than not, there is one segment banks neglect to give proper attention to, the small and medium enterprise segment, commonly referred to as the SME. The funny fact is that the SME market represents the biggest revenue opportunity for a bank, but is often the segment that is given a disjointed proposition. The problem is that some banks treat their SME customers as small corporations within their otherwise big-corporate systems. Others provide the SME banking services that are more often considered consumer focused. In both cases, neither quite provides the SME with the most relevant service.

I was recently chatting to an ex-banker, who added an interesting slant on the problem. Take the example of a small corner store owner, who’s very pleased when success leads to the opening of additional stores. The joy stops there when the owner goes to the bank to deposit the takings (yes, cash is still used by some...shocking I know). The owner and the counter clerk know each well and the clerk delivers the bank’s ‘good news’ - the owner has become a ‘special’ corporate customer. The side effects of this ‘good news’ include: having to move all accounts to a new process, using a different online banking interface with different login credentials (from the personal account) and being assigned a business manager, removing the friendly relationship with the counter clerk. Oh, and the best news is that the bank will now charge more for this privileged opportunity.

With the growing business mentioned in the above example, think of this initial onboarding experience. The shop owner likely banked the same way from the day the shop opened, was treated as a consumer literally from the day the business account opened until the day of the bank’s aforementioned ‘good news – with the owner becoming a corporate client. As you all know, onboarding SMEs to a new banking experience is normally a stressful process. The sudden shift from a consumer experience to a corporate one can be jarring, which is all the more reason why banks need to focus on this client segment’s needs.

Internet banking services are now themselves service-oriented, meaning that the latest generation of solutions has the ability to grow with the customer, so while our shop owner may still have a business manager, their online experience won’t change and the bank can introduce new functionality that can help the owner better manage the business.

It’s time for the industry to stop delivering solutions based solely on the traditional revenue-based silo model and bring solutions to market that are enterprise-based to represent the bank as a whole. This enables the customer to grow organically within the banking services provided, and not open up the opportunity for a dissatisfied customer to visit the next bank around the corner. Having the control, choice and flexibility to service these customers as a market of one is needed, not multiple ‘one size fits all’ solutions.

Forcing customers to migrate systems is the quickest way to lose them, no matter how sticky the relationship may look on paper.