Banks invest significant time and resources in understanding their biggest customers – those institutional and corporate accounts. But for those relationship managers (RMs) tasked with growing profitability in the retail or small-to-medium business (SMB) sector, the challenge is often about how to do more with less. As we head towards a new banking financial year, is it time to adopt a new approach, inspired by the success of challenger banks?
As discussed in a recent blog by my colleague Karl Seward, Challenger banks – those relatively small retail banks that have begun to take on bigger, established banks – are beginning to transform the traditional operating landscape of banking:
- According to a recent KPMG report, in the UK, smaller banks, delivered a 17 per cent return on equity (ROE) last year and the largest challenger lenders posted a 9.5 per cent ROE.
- Both groups outperformed the big five banks, which produced a ROE of 4.6 per cent in 2015
- Challenger banks are appealing to many SMBs that are demanding more flexible lending terms
While it’s true that the Australian banking system is not the same as the UK’s, both markets share inherent processes, people and products and face similar regulatory, reporting and growth hurdles. And in both markets, much of the success of challengers has been due to the failure of traditional banks – they just haven’t done enough to cater to the complex SMB market. Challenger banks are nimble, innovative and tech-savvy – they deliver the banking services that SMBs want in the way that they want them.
Shifting to a challenger mindset
What can established banks learn from the newbies? In my opinion, the first lessons are in changing their mindset around engaging with SMBs:
Rethink how you engage: Many traditional banks have a poor track record of engaging with SMBs and have been slow to interact with them via digital channels. A recent Fujitsu survey revealed that more than a third of European consumers said they would move banks if they did not offer up-to-date technology. Within Australia, we see our Big 4 banks making significant leadership changes through appointing Chief Digital Officers (CDOs) and Chief Customer Experience Officers (CXOs) – but is the new focus on digital penetrating down to the retail level? With many SMB customers juggling multiple business and personal responsibilities, their reliance on digital platforms to conduct transactions and interact with customers is especially important.
Rethink how long it takes to engage: Challenger banks are increasing their share of the market at a relatively slow and steady pace. Their approach is based on taking time to develop stronger and deeper relationships with customers, and it’s one that more traditional lenders should consider. Winning large numbers of SMB customers will not happen overnight due to the complexity and disparity of this group but commitment over the longer-term will yield results in this fertile market – most SMBs reported positive revenue growth over the past year.
Three ways data can empower the SMB relationship manager
Once banks commit to using digital platforms as part of their long-term approach to building their relationships with SMBs, they can start to do this by using data in three ways to better understand these customers:
- Share SMB information: Banks have invested heavily in comprehensive customer relationship management (CRM) systems and databases but many still struggle to unlock the real insights from the information contained within. We help clients deploy the right analytics to help frontline bankers discover and share actionable information about their clients and meet specific needs – for example, 62% of SMB owners say they need more access to credit if they are to grow.
- Overlay multiple data sources: SMB relationship managers generally know their clients well – but sometimes the bigger picture about the environment in which they operate is less well understood. Overlaying internal data with multiple third-party information about the client’s industry segment, their geographical location and trends within their sector can build a deeper understanding of an SMB client’s particular current and emerging challenges.
- Communicate strategically with clients: These multiple sources of data can then empower banks’ frontline SMB managers to effectively target their SMB clients in a more strategic way.
The rise of challenger banks is a shake up for the traditional banking market – but it can drive a raft of positive changes to policies and practices for those banks prepared to learn from the newcomers. The new financial year is the perfect opportunity to deploy some of these tactics and use data to make greater in-roads into the SMB market. Drop me a line if you’d like to find out more.
About the Author
Joseph Lim is the Director Australia & New Zealand at Avention OneSource Solution, which is a member of the Which-50 Digital Intelligence Unit. Members contribute their expertise for the benefit of our readers. Membership fees apply.