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By · February 17, 2021
7 minute read

SME Banking: Weathering the Storm

looking up throught glass skyscrapers at clear skies

SMEs have a painful problem these days: their own viability. What can banks do to serve them better and capture this lucrative but demanding market?

Because of their size – by definition, they employ less than 250 employees in Europe – SMEs sit in the no man’s land between retail and corporate banking. Yet their contribution to the economy and society is staggering. In the European Union, for instance, SMEs account for a striking 99.8 percent of all employer firms – 65 percent of private-sector employment, according to Eurostat. 

SMEs are also an important source of business for financial services players. Each year, they generate $850 billion globally in revenue for banks. That accounts for 20% of worldwide banking revenues. 

Severely hit 

Yet their prosperity has been hit by the COVID-19 crisis, according to a McKinsey survey of more than 2,200 SMEs in five European countries—France, Germany, Italy, Spain and the United Kingdom – conducted in August 2020: 

  • Some 70 percent said their revenues had declined as a result of the pandemic, with severe knock-on effects;
  • One in five was concerned they might default on loans and have to lay off employees; 
  • 28 percent feared they would have to cancel growth projects;
  • In aggregate, more than half felt their businesses may not survive longer than 12 months; 

In short, the major problem that SMEs are currently facing is their own viability, the International Monetary Fund reveals. 

The jobs at risk due to COVID-19related SME business failures represent 3.1 percent of private-sector employment. 

Despite their importance, SMEs are exposed to a major vulnerability – they are critically dependent on debt, especially bank loans, for financing (…) During a crisis such as COVID-19, SMEs’ dependence on bank financing and the inability to raise other sources of funds at short notice can turn a liquidity shortage into a solvency problem”, according to the IMF.

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“Beyond comfort and user experience, SMEs require from us: an inclusive mindset, agility & speed, support (and empathy) in service, and access to loans” – Tiberiu Moisa, Deputy CEO, Banca Transilvania

Struggling yesterday, struggling today

Across Europe, even before the outbreak of the pandemic, accessing finance was more difficult for SMEs than for large companies: more SMEs faced obstacleswere discouraged from applying for loans and received rejections.  

In the UK, for example, more than 50% of SMEs apply to only one loan provider because of the “hassle” with the application journey. 

 SMEs’ needs are diversified. They’re struggling now and they will have to struggle post-COVID-19A onesizefitsall strategy may not work”, Tiberiu Moisa, Deputy CEO, Banca Transilvania (BT) said during the session dedicated to SME Banking at FintechOS Annual Summit. BT has embarked on a journey to serve SMEs as a strategic segment for the bank.

“Beyond comfort and user experience, SMEs require from us: an inclusive mindset, agility & speed, support (and empathy) in service, and access to loans”, Moisa added.

Moisa thinks technology saved many “but this was just the beginning of the new journey”.

“If we build and maintain an inclusive mindset – which is founded on the idea that we <leave no businesses behind> –, then our chances of meeting customer needs and building a customer-centric organization are so much stronger”, he said.

Three key areas 

Is building an inclusive mindset enough to become an SME-friendly bank?

Cătălin Dediu, VP Product Management Director at FintechOS, cited the “hassle” mentioned earlier during the debate, pointing out that digital leaders are focusing their transformation efforts on three key areas:

1. Time to Apply – cutting it down to 5 minutes 

2. Time to Yes –  reducing it from 20 days to 10 minutes 

3. Time to Cash – slashing it to 24 hours 

 As a segment, SMEs probably have the most varied needs, and they’re continuously evolving.  But access to finance seems to be their biggest problem. They are underserved: the average time-to-yes is 3 to 5 weeks. The average time-to-cash is 3 months. But a large customer base with growing needs means untapped revenues”, Dediu observes, pointing at the huge potential that bankers can unlock. “There is an opportunity to embed themselves at the centre of the SME ecosystem”, he says.

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“In order to achieve personalisation, banks need to use the right technology to unleash data” – Cătălin Dediu, VP Product Management Director, FintechOS – PHOTO: Cătălin Dediu during FintechOS Annual Summit virtual event

Besides access to finance, SMEs’ need for personalisation and customisation is probably the most pressingHow can this need be served? 

  • “In order to achieve personalisation, banks need to use the right technology to unleash data”. 
  •  Then comes the power of automation, which can improve the customer experience while lowering costs.  
  • “Banks should aim to redesign back-end processes to eliminate manual input and enable real-time decision-making”, Dediu of FintechOS concluded.


small business covid 19 impact

KBank story: How future-fit SME Banking looks like

Thailand-based Kasikornbank (KBank) was established on 8 June 1945, at the end of World War II. From the very beginning, the bank placed emphasis on financial services for farmers, who made up the majority of the Thai population. “Such initiative kept the economy rolling despite hard times during the War”, KBank writes on its website.

In 2020, amid difficult times for small businesses and entrepreneurs, hit by the COVID-19 crisis, KBank came up with a similar initiative, expected to save 41,000 employees. In early May, the Asian bank launched a 1-billion-baht loan scheme, offering interest-free borrowing for the first year to small and medium-sized enterprises (SMEs) with up to 200 employees. All as a way to keep 41,000 workers on payroll during the pandemic. The Baht is the basic monetary unit of Thailand and equals 0.034 United States Dollar.

“The bank will also provide a monthly grant of 8,000 baht for three months to SME employees taking part in the scheme (…). The scheme waives all fees, requires no collateral and offers a debt moratorium for one year”, KBank’s representatives stated in a press statement last spring.

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“We work with partners to offer this service as a seamlessly integrated tech and banking solution to help SMEs come onboard and improve their experience” – Chat Luangarpa, Executive Vice President at KBank during FintechOS Annual Summit virtual event

Chat Luangarpa, Executive Vice President at KBank was a speaker during the debate on SME Banking in November. He revealed his bank’s strategy towards this segment, which goes beyond offering access to finance, SMEs’ main concern.

“SMEs are mostly good at what they do, but they usually struggle in terms of servicing themselves”, Luangarpa noticed. “We ran some studies and we found out that customers are looking for someone to help them expand their business, to be efficient in what they do, to optimize their cash-flow, connect to other businesses – and more.”

How is KBank tackling this? “We are serving them by offering a lot of B2B subscription-based solutions and online services. We are also partnering with tech companies to transform themselves in a digital world and expand overseas.

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How future-fit SME Banking looks like (KBank)

More than that, to better serve its customers, Chat Luangarpa said that KBank built a program, KSME Digibiz, where the bank is trying to embed its services into the B2B ecosystem. “We work with partners to offer this service as a seamlessly integrated tech and banking solution to help SMEs come onboard and improve their experience”.

What does KBank get in return? “We get to see a lot more information about their business and real-time transactions. In the future, we will use this data to customize our services”.

KBank’s SME business division in the first half of 2020 reported outstanding loans of Bt538.4 billion, up 11.3 per cent year on year. New SME lending was registered at Bt143.4 billion, or an increase of 13.9 per cent, the bank reported.


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