Innovation: the key to bank differentiation for SMEs

By Martin Campbell | 30 October 2015

Choosing a bank when you are a small business or start-up can be a thankless task. Most banks claim to be supportive of small businesses but finding one that addresses the issues that really matter isn’t easy. Many start-ups end up working with the bank that they use for their personal current account, believing it to be more straightforward and less hassle to have their money with the same provider.

Banks are broadly happy to go along with this customer inertia. But with recent research showing that 31,294 new companies were created in the UK between January and March of 2015, an increase of more than 50 per cent on 2014’s figures, competition for banks to work with start-ups is going to increase.

This is a very similar story all over the world, with banks struggling to engage with small business customers. So how can banks differentiate themselves for small businesses and what are the banking issues that really matter for SMEs? The answer partly lies in data, and how banks use data to address tangible business issues for their customers.

Inertia remains

Even in this era of empowered consumers, customer inertia is still surprisingly common. But it is beginning to change. More small businesses are being created than ever before and the Government constantly talks of fostering a culture of entrepreneurship. This means banks are going to have to work harder than before to attract and retain small business customers.

An attractive introductory interest rate is not going to provide that differentiation, so banks need to look at the services they can offer a small business. When most people start a business, they don’t have the knowledge base required so often need a helping hand from time-to-time. That might be advice on how to manage red tape around exporting, that might be support on how to market their business effectively. But what is increasingly useful to small businesses is the ability to make meaningful sense of the enormous volumes of data available to them.

Innovation and small businesses

Savvy small business owners should be aware that big data can be an integral business tool for them, but usage numbers would suggest that something is stopping them. This is an area where banks can really help.

For example, our free online tool, CreditHQ, analyses credit data to allow a small business to check the financial health of any firm they work with, and gives insight as to whether they are likely or not to be a prompt payer – effectively using big data to address tangible business issues. Cash-flow is a hugely important issue for small businesses. We recently conducted data analysis that revealed that the late payments pursued within CreditHQ average £6,142, a significant figure that shows the scale of the problem.

So by analysing data from Companies House and credit reference agency Dun and Bradstreet, we are able to offer a valuable service to small businesses, addressing late invoice payment and cash-flow. But are banks able to do this? Many are large, well-established and fairly inflexible institutions. They are also heavily regulated.

Banks may recognise the need to be innovative in their offering (and may indeed have innovation officers and teams dedicated to doing just that) but faced with a rigid infrastructure, delivering on that is another matter altogether.

Closer start-up collaboration

The solution lies with banks establishing closer relationships with start-ups, the kind that can offer the type of services that a bank’s small business customers would want enough to use that bank. By their very nature, start-ups are more flexible and agile than banks and can bring a product to market significantly quicker in most cases. They are also more used to innovating on a day-to-day basis, and there are many start-ups in the UK alone that offer services to both businesses and consumers, based on innovative use of financial data.

So rather than trying to deliver such services themselves, perhaps banks should be embarking on partnership programmes, that look to identify the most innovative fintech and big data start-ups and bring them into the bank’s eco-system.  Rather than seeing such companies as potential rivals, they should instead collaborate to offer customers a superior and differentiated service to the competition.

With more small businesses than ever before, competition is fierce amongst banks to win that business. Big data and innovation are increasingly important ways of providing that differentiation, but with banks too inflexible to provide that, could we be entering a new of bank / start-ups collaboration?


By Martin Campbell, MD, Ormsby Street

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development