Commercial Banking: Businesses are People too…

In the world of commercial banking it’s easy to forget that every business, no matter how large or small, is made up of people who deserve the same kind of personalization that retail customers experience online.

Commercial banking is a term that covers a large range of activities but it’s the term we feel best suited to business banking. Mostly because it has little or no implication regarding size, and let’s face it, this is a subject where size does matter. A small business can be anything from one person sitting at their kitchen table or up to 50 employees in an office. A corporation on the other hand can have up to hundreds of thousands of employees spread all over the world. Obviously the needs of the small business owner and the corporate entity are going to be wildly different in terms of complexity but referring to them independently when talking about levels of service seems innately unfair. However, banks seem to be providing a one-size-fits-all approach to business customers. Large companies are presented with a range of online service options, while small business get what looks like a jazzed-up personal account with a few extra features. Surely it’s the customer who should be able to decide which products best suit their business needs? Research shows that the SME sector is significantly underserved by banks and the overwhelming majority of them are willing to pay for service improvements. Over a series of posts we want to explore how banks can provide services that meet the specific needs of everyone from the one man band and the multinational corporation while at the same time increasing revenue, stimulating the economy and creating innovative business opportunities.

In this post we’re going to look at how the world wide Web 2.0 movement has affected the way retail banks interact with their customers online, and why commercial banking will have to follow suit.

Today, the blogosphere and mainstream media are humming with stories about how banks are starting to respond to consumer demand for greater transparency and engagement on digital channels. There are apps that help calculate mortgages while house hunting, and financial innovators like Moven and Simple are helping consumers take control of their finances. But, how has all of this affected how business do business with banks? Are they getting the same type of online tools? Are products being tailored according to segments and business life-stage’ needs?

The short answer is, no. Possibly because for a long time it has been thought that commercial banking clients were just too entrenched with their banks and unlikely to move. However, that is no longer the case. As early as 2010 Finextra found that 62 percent of banks ‘would consider switching to a different bank for better customer service’ and 57 percent said they would be willing to pay higher fees for a sophisticated web portal that enabled them to manage their entire portfolio through the web.’

Three years later banks are still struggling to provide the kind of service that will keep their commercial banking customers happy. Those in the SME segment feel overlooked, unsupported and undervalued. When you consider that, according to a recent report from Accenture, SMEs ‘generate a proportion of UK private sector turnover that is virtually identical to that of the UK’s 6000 large businesses’, banks are clearly missing out on untapped revenue here. The same study found that 48 percent of this sizable UK market is currently unsatisfied with the level of service being provided by banks. Accenture discovered that the customers placed a lot of value on the importance of innovative services, stating: the needs of SMEs are moving away from basic transaction banking and ‘vanilla’ lending towards more tailored and innovative financial features. It’s also clear that today’s SME customer wants a different type of relationship with their relationship manager – one offering access to sound, trustworthy advice on products and services, as well as on a range of wider business issues.

Similarly, corporate banking customers needs are evolving with the encroachment of new financial technologies, which banks’ outdated systems are unable to keep up with. George Fong, Head of Trade Product Management and FI Trade Advisory, Asia Pacific for J.P. Morgan Treasury Services, writes ‘along with better managing [of] their working capital, corporates are also focusing on increasing their efficiency and enhancing their access to timely information and analytics… clients are demanding more efficient transaction workflow management, electronic transaction initiation, increased integration, reduced documentation and more robust inquiry and reporting capabilities.’

It’s clear that while banks are beginning to support innovation in the retail sector, their commercial banking customers are being left out in the cold. While this is largely down to the complexity involved in some segments, it is by no means unavoidable. Over the coming weeks we will look at challenges and best practices in the SME segment, what are the issues at the core of corporate banking, and how technology help banks bridge the gaps before commercial customers jump ship.

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