The Under-Tapped Banking Consumer Segments of the World – SMEs

The third and final in a series of articles aimed at identifying strategies that banks should follow for tapping into the potential value certain consumer segments hold for them…

You can download PDF version of this whitepaper here.

The focus of this month’s article highlighting under-tapped banking consumer segments of the world is small and medium enterprises (SMEs), also known as small and medium businesses (SMBs) in some markets. How an SME is defined varies country-by-country; however, the most commonly utilized definition tends to be as follows:

Micro Enterprise (may be called SOHO): Employs 1 – 9 employees

Small Enterprise: Employs 10 – 49 employees

Medium Enterprise: Employs 50 – 249 employees

The size and importance of this segment of consumers cannot be stated enough – SMEs constitute 99% of businesses globally, and are responsible for approximately 50% of the world’s GDP. In the EU, as an example, 20 million or so SMEs employ about 65 million people, representing almost a third of all jobs within the EU.

Many banks fail, however, to cater to the specific needs of this all-important segment. While true that most do have some sort of offering for SMEs, the generic nature of the offerings makes it clear that it’s almost as an afterthought. The customization in some cases seems to be just the changing of the product or services’ name to pretend it’s for SMEs, rather than changing the content and value proposition to truly benefit the end-users.

SMEs, as described in an article around loyalty programs in the past, have been traditionally viewed by companies as too few as a group to be deemed as important as the personal banking segment, too low in value individually to be treated like those in the commercial banking segment. The fact that one day some SMEs will become commercial banking clients, and the fact that the employees of SMEs may / can become personal banking clients demands banks introduce / revisit their SME offerings.

Winning over SMEs requires banks customize what they do in their marketing activities, in their distribution channels, and in their customer care efforts. Some financial institutions excel in how they address the needs of the SME segment, with those in the UK particularly at the forefront. Some examples of what best-in-class banks are doing for SMEs:

HSBC Bank, UK: The bank has particularly excelled at providing support services for its existing and potential SME clients. These come in the form of a business networking center, where its existing clients can network with other business clients, a business start-up center, providing a wealth of resources for those looking to launch a small business, BusinessTV, providing various clips around helping small businesses invest their assets, and the KnowledgeCentre, providing news and know-how for SMEs – designed around planning, launching, running, growing, and exiting an SME (wisely built right around an SME’s lifecycle). HSBC also has customized its portfolio of offerings around SME micro-segments, with such products as “Restaurants Insurance,” “Working From Home Insurance,” and “Surgeries Insurance” available to its SME consumers.

Natwest, UK: Natwest offers a practical self-assessment tool available to all SMEs free of charge on their website. Called the “Online Business Review,” this tool allows businesses to assess themselves around 6 topics – Cash Flow, Customers, Finances, Management / Leadership, Managing Risk, and Suppliers. Based on the responses, a detailed report is prepared for the SME, with advice on how to improve their operations – the bank naturally links problem areas and issues back to their own set of products and services, offering a solution to the problem it has itself defined for the SME.

ICICI Bank, India: The bank has segmented its SME consumers and the way in which they are serviced based on the product and average balance a given SME holds at ICICI. Depending on the product / average balance, an SME is entered into a different tier of the Club Elite relationship management program. Entry-level Club Elite SMEs receive such benefits as priority access via the call center and invitations to exclusive events, whereas high-value SMEs in the Club Elite “Royal” tier receive prioritized service in the branches, a dedicated relationship manager (in addition to having almost all banking fees waived on various transactions).

Barclays Bank, UK: The bank is truly committed and focused on building an in-depth relationship with its SME clients, and accordingly, gives back a great deal to them in ways aimed at gaining their trust. The following are just some of the free services offered by the bank to its SME clients:

  • Free marketing advice via consultation with a marketing professional
  • Free legal advice via a 30 minute appointment with a solicitor
  • Free accounting advice via consultation with an accountant when an account is opened at the bank
  • Free online business data backup (2 GB of free backup storage for documents)
  • Free business skills training via a partner e-learning company called MindLeaders

Fifth Third Bank, USA: The regional US bank has a very strong credit card offering in place to entice SMEs to join their ranks. Not only is the program designed exclusively for them (unlike programs other banks offer that are the same as those offered to the personal banking segment), but also allows personal banking account points to be pooled with those earned through the program – thus allowing for a more rapid redemption cycle and further hooking SMEs. Two specific features make the program more enticing for SMEs:

How points are earned – At an accelerated rate for business-related purchases (office supplies, airline tickets, utility payments, etc.)

How points can be burned – Redeemed on items that can directly impact the bottom-line of the business (hotel stays, airfare, car rentals, office supplies, etc.)

We believe banks need to review their current strategies for winning over SMEs, and ensure they are in the most effective manner addressing them appropriately via their marketing, sales, and customer care tactics. A couple of tips and points that banks should consider and watch out for as they do so…

1. Sub-segments and their needs

The needs of each SME sub-segment differ somewhat, in that the nature of their business dictates each be addressed with a different set of banking products and services, complemented by a customer care strategy that is designed around their behaviors. White-collar, executive laden SMEs, for example, need be addressed with employee insurance and investment vehicles, managed through a dedicated account manager, backed up with a strong mobile and internet banking offering, whereas blue collar dominated SMEs need be addressed with free employee checking accounts, managed through a 24/7 call center, with branches conveniently located near industrial areas, offering extended hours around paydays.

While white collar vs. blue collar is one way to look at segmenting SMEs, a sector approach is also required. Retail, healthcare, manufacturing, and restaurants are but a few of the most commonly addressed sectors by banks in differentiated manners, whereby various product / service offerings and bundles are prepared to meet SME needs. Much as in the way HSBC Bank UK offers insurance products that cater to the needs of each sector, so too must key products and services be customized.

Prior to conducting such a customization effort, it is critical for banks to truly understand their customer base, both quantitatively (conducting SME segmentation) and qualitatively (through surveys or focus groups with SMEs). This will then allow the bank to customize its offerings based on SME sub-segment value, behavior, and needs.

2. Start-ups and partnerships

A significant proportion of SMEs are those deemed micro-sized, with less than 9 employees in the enterprises. Every year, thousands of new companies are opened and join the ranks of the micro enterprise segment, each requiring a significant amount of assistance in getting their businesses up and running.

Banking products and services are a necessity for most, if not all, of these businesses, in the form of checking accounts, credit cards, loans, etc. Banks seeking to make inroads with this segment of consumers can look to increase their attractiveness through offering one-stop shopping for start-ups, via the establishment of partnerships with relevant companies. Relevance here is around the needs of start-ups when they are being established; as such, partnerships should be sought with telecoms, office supply retailers, real estate agencies, employment agencies, etc., any type of company that a start-up could benefit from during its infancy. Partnerships can be formed in the sense of developing bundles and packages that provide benefits and discounts for end-users, or could be in the form of using each other’s distribution channels for sales purposes.

In many markets, such partnerships don’t exist, or are being tested and in preliminary stages. Banks that act quickly can gain a first-mover advantage by securing exclusive partnerships with companies that hold significant market share in their countries, and become THE go-to bank for start-up businesses.

3. Tap in to the employee base

SMEs hold potential way beyond that of what they themselves can offer a bank in terms of revenues – significant untapped potential lies in the employees of the SMEs. Each of the employees represents a potential personal banking client for the bank; accordingly, the personal banking and enterprise departments of banks must come together to devise a strategy for acquiring them.

A few methods for acquiring employees of client SMEs include:

  • Creating an incentive for the SME to drive consolidation of employee accounts at the bank (i.e. waiving all banking fees if accounts are brought under the bank’s operations).
  • Creating an incentive for the employees to switch their accounts to the bank (i.e. giving double bonus points via the bank’s loyalty program to personal banking clients who receive a direct deposit monthly from another account at the bank)
  • Providing group benefits for SMEs that hold a certain amount of pooled accounts with the bank (i.e. SMEs that have a total of 10 or more enterprise or personal banking accounts with the bank receive a voucher each month for a team dinner).

Any of the above scenarios or others each need to be tested for their feasibility via the development of a business case; such methods could be used in a discriminatory manner, only applied to those SMEs and employees that hold a certain amount of potential for the bank.

The tips and points listed above to consider and watch out for are only those which some banks normally could overlook. Any strategy for winning over SMEs requires a comprehensive offering be developed that meets their needs around products, services, and support, an offer set that is competitive in the market, and that is not easily duplicable.

To learn more about developing banking SME segment offerings, please contact


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