Small businesses are the lifeblood of this country. Making up 99% of businesses and employing over 50% of the workforce yet they seem to mystify the banks. Despite their strong hold on the Australian economy most banks struggle to generate strong returns and therefore don’t always have a great relationship with them.
Many banks find serving this sector has high costs, particularly with lending. Small business loans often generate low or negative returns with high costs to service such as underwriting, loan reviews, operations, monitoring and compliance. These expenses can quickly take up all of the profit. So what banks do to combat this is to just apply the strategy on a larger scale with the theory that more customers equal more profit. Even if they are making almost no profit, a small profit multiplied by thousands and even hundreds of thousands of customers can equal reasonable profit.
However, is there another way? A better way?
Banks have the ability to leverage proprietary data in order to personalise small business relationships. When they do this they can provide customised insights and advice to customers. For a small business this can be a game changer. Small businesses often lack advisers or financial support and the insights can be really helpful. By providing information and support that is valuable and meaningful to the small business the bank is creating loyalty. Loyalty is what banks need, because their money is made over the long term life of the customer. They need strong retention rates of customers in order to make stronger profits. So done properly this can create a win-win for the bank and the small business.
The future is here. While banks have tried to do some of this in the past it hasn’t quite hit the mark, especially not on a large scale. However, now with technology advancements the way they are there is a much bigger opportunity. Artificial intelligence and predictive analysis technologies mean that banks have a greater opportunity than ever to be able to really deliver powerful insights that are meaningful for small business. They will be able to do this on a larger scale, and with lower costs.
So the big question is will they? Banks have the tools and technology they need and we know that small business want this level of data and support. But will the banks step up and take this challenge? Those that do it first will be pioneers and will reap the benefit. If they don’t someone else will. Whoever does will put a huge dent in the small business market.
Do you need experts help?
We are experts in helping our clients with reporting required for banks and with relationships across all major banks we are only too happy to help you navigate this relationship. Speak to our team if you need assistance.