Napoleon once said that Britain is ‘...a nation of shopkeepers.’ Over the last few years, we’ve proved him right with the number of SMEs incrementally growing from 4.5m in 2011 to 5.7m in 2017 - business birth rates overtaking business death rates. So, it’s official: there’s an ongoing SME baby boom, and last year, they bought in a combined annual turnover of £1.9 trillion, 51% of all private sector turnover in the UK.
Alongside the SME boom, we’ve seen a boom in competition within financial services - from within established retail banks, as they struggle to bring business banking up to par with personal banking, through to emerging challengers, who are either becoming banks or acting like banks. These challengers enter the market by focusing on a specific part of the value chain and delivering it better than anyone else - they excel in customer experience, but often suffer from limited product range. At least, for now. And finally, we’re seeing Internet era players like PayPal expanding the role they play, unbundling the value chain even further. Consider PayPal moving into loans via their Working Capital proposition, for example.
All of these changes are being dramatically amplified as a result of PSD2 and the CMA’s retail banking market remedies. The new regulatory environment promises third parties access to valuable data and payment services - in turn, creating new opportunities to compete, and shaping new roles to play. The reality is that the aggregatable world we live in has arrived - and it is knocking at banking’s door. What this means for consumers, and small business owners in this context particularly, is new ways to pay for goods and services, new ways to access our financial and personal data and finally, new ways to prove who we are.
Yet, whilst we have seen an influx of new types of competitors offering new tools and services to help SME owners, none have succeeded in delivering a leading digital banking service for small business.
So, why is that?
At TAB, we believe that people don’t want products or features. Instead, people want to achieve specific outcomes, and they simply ‘hire’ products to help them achieve these.
Today, the tools and services SME owners use to manage their finances and achieve their outcomes suffer from a number of shortcomings. Typically, the solutions are:
Today, SME owners use multiple products and services to manage and grow their business. In isolation, these products look good and perform well. The problem is that they don’t integrate easily together.
Consequently, data is spread across various tools and services, both online and offline. This requires SME owners to log into and check multiple accounts, manually aggregating multiple data sources together to simply gauge an overview of their business.
The result is that getting value from financial data is a significant time drain. SME owners end up wasting lots of time aggregating, analysing and then trying to understand their data. What they need, however, is to be able to make quick, informed and smart decisions about their business.
SME owners today have to go out and find the information they need. Any unpaid invoices? Any upcoming payments that need to be authorised? Rather than this information proactively revealing itself when needed, SME owners instead have to rely on their memory, habit - or simply have the due diligence - to manually and consistently check.
Across the board, there remains a one-size-fits-all approach to developing SME products and services. Consequently, the ability to personalise products and services to the needs and preferences of the business owner remains limited - given the diversity of SME businesses, that’s both a real pain point and a missed opportunity.
The result of all of these shortcomings is valuable time wasted for busy SME owners. This may once have been forgivable, especially given SME owners had little choice in the matter. In an Open Banking world, however, these shortcomings can no longer be dismissed. SME customers will soon hire solutions that allow them to recoup this lost time in the easiest way possible - and they will have more options to choose from than ever before.
It’s time that incumbent banks rethought not just their consumer banking propositions, but their SME offer as well.
To be able to compete successfully in this growing and dynamic market, and leverage the promises of PSD2, there are certain fundamental characteristics that any future SME proposition will need. Our next post will take a closer look at these, and consider how well each ranked when we tested them with SME owners around the UK.