Almost all businesses operating in the United States are small and medium-sized enterprises (SMBs), and they employ more than 47% of Americans, according to 2019 The data from the Small Business Administration Advocacy Office. Even the pandemic and the ensuing economic downturn were not enough to stop these companies from launching last year, with nearly a third of more SMEs. forming in 2020 than in 2019. SMEs are an integral part of the global economy, but their lower loan values and higher risks of bankruptcy have historically left them underserved by the financial sector.
Former financial institutions (FIs) have started to view SMEs with more interest in recent years, as FinTechs, neobanks and other digital players have courted mid-sized businesses with convenient loan products and online banking tools. For example, the cross-border payment service Wise – formerly TransferWise – sign 10,000 new SMB customers every month last year, as small businesses left their old banking partners for faster payment experiences.
Banks that have yet to adjust their offerings to meet the changing needs of SMEs during the ongoing digital migration may find it difficult to engage and retain these customers over the long term.
The following Deep Dive explores how the banking needs and preferences of SMEs are changing and details what traditional FIs need to do to meet those needs. It also examines what tools and technologies are becoming essential to provide SMBs with satisfying banking experiences and how banks can use these tools to boost SMB engagement and loyalty.
Meeting the banking needs of SMEs
The expectations of SMEs vis-à-vis their banks are following familiar trends. Decision-makers at these companies seek the same fast, convenient digital experiences they enjoy as consumers, especially as the need for transparent payments becomes more critical for small businesses.
Late payments from customers and industry partners have become a big issue for SMEs, with PYMNTS data developer that 14% of B2B receivables were past due for companies with less than $ 50 million in annual revenue in 2020. A 2020 Mastercard to study found that the pandemic had prompted 82% of U.S. SMEs to change the way they send and receive payments, and 50% added a new digital service to raise funds to solve cash flow issues.
The study noted that cash has become a priority for SMEs because the health crisis enlarged many of their existing payment frictions – 48% of small businesses said their businesses were one payment missed from going bankrupt. SMEs surveyed in February 2021 to study remained in a precarious position, with 80% of them saying they would need social or financial support to survive another public health lockdown, although 74% of them thought they were ” financially resilient ”.
These difficulties have prompted many SMEs to seek banking partners who can help them receive and access their funds as quickly as possible. This represents both an opportunity and a challenge for traditional financial institutions. Banks hoping to grab the attention of SMEs should offer real-time payment tools and other business-to-business (B2B) digital services, but these solutions alone won’t help them compete in an increasingly crowded landscape. .
Growing ranks of FinTechs and neobanks are adapting their offerings to meet the changing payment needs of SMEs, and FIs can gain a competitive advantage by using application programming interfaces (APIs) to connect and customize transparent payment services. with the own tools and platforms of SMEs.
Critical role of APIs for SME banking
Leveraging APIs is a key strategy for financial institutions looking to engage SMEs in their digitalization to increase their cash flow and profitability. Technology allows banks to support real-time payment services as well as electronic invoicing and other B2B tools that can give businesses a more transparent view of their finances. APIs are quickly becoming table stakes for the financial industry as SMBs seek the level of speed and customization in business banking services that they expect from their consumer banking experiences.
The connectivity provided by APIs is proving crucial to stay ahead of the next generation B2B banking world, and banks looking to retain and retain SMBs will want to make APIs a central part of their business strategies going forward. .