Banking in 2025: SMB Banking can be Key to Market Leadership

By Tushar Chitra and Avinash Swamy, Oracle

Retail and corporate/wholesale banking segments have dominated focus and investments in the banking industry. In the coming decade, however, serving the needs of an evolving small and medium business (SMB) segment can offer banks significant opportunities for growth and revenue. As a result, the banking leaders of 2025 could very well be those with large SMB customer bases in addition to retail and corporate banking segments. This blog explores how a redefined value proposition with customized and integrated offerings can help banks win in the SMB segment and become market leaders.

SMBs, a segment in need

The events of 2020 and continuing uncertainty hit SMB firms hard due to their smaller size and lower resilience to shocks. SMB firms across the globe grappled with demand reduction, disruptions to supply chains, and cash crunches. Governments worldwide stepped in with support programs to provide financial assistance to this critical segment, which represents 90% of all businesses and more than 50% of employment worldwide, per the World Bank.

In addition, the world of commerce and business is witnessing an accelerated shift to digital consumption, distribution, procurement, and operations. SMB firms are struggling to effectively adapt to new operating models in an evolving digital environment. Digital, however, offers SMB firms the opportunity to tap new demand, drive operational efficiencies, and lower costs. According to research by IDC, the events of the pandemic’s peak resulted in over 90% of SMBs increasing their reliance on technologies. As a result, digital adoption is no longer an option but a matter of survival for SMB firms.

The SMB segment is at a critical inflection point, dealing with economic challenges and an evolving, digitally-driven world of commerce. SMB firms are looking for the right partners that can help them succeed in such rapidly evolving circumstances. The opportunity is ripe for banks to ramp up relevant offerings and establish themselves as critical partners to SMB firms as they navigate this critical juncture.

SMBs, diverse and underserved

Traditionally underserved by banks, SMB firms have often been grouped either with retail customers or large corporate clients. As a result, retail banking or corporate banking products have often been repurposed for SMBs. While there is some overlap in needs, such repurposed products fail to serve the distinct needs of a very diverse segment.

Banks have often been reluctant to lend to SMB firms or have charged higher interest rates due to elevated credit risk profiles of SMB firms and complicated risk assessments. Often, SMB firms are forced to seek financing from non-bank lenders, so much so that these lenders offer stiff competition in several areas of the SMB lending space. In addition, the bank–SMB relationship has also often been centred on financing, overlooking several critical aspects that help SMB firms operate profitably and grow.

SMB value—redefined

To succeed in the segment, banks should redefine their value proposition for SMB banking in 2025. Customised, timely, integrated products, services, and digital experiences are critical aspects of a new value proposition. We look at some of these aspects below.

Customisation: SMB firms have distinct needs. Being heterogonous, a one size fits all strategy is also out of the question. Successful SMB banking in 2025 will require categorising SMBs into as many distinct sub-segments as possible based on factors like revenues, the number of employees, the type of industry they operate in, etc. Only by understanding the intricacies that each sub-segment operates under can banks become true partners to SMB customers by offering customised products, services and pricing - that best serve the specific needs of the sub-segment. Such customisation can offer unique value to each segment and increase satisfaction, trust and ultimately loyalty. Modern and flexible core systems can help banks drive the required customisation very efficiently.

Integrated offerings: Managing cash and finances is a constant challenge for SMB firms, especially in the current economic environment. Piecemeal approaches of siloed products and services will not drive successful SMB banking in 2025. Instead, a holistic strategy the enables speed, flexibility and returns at every stage of the cash conversion cycle should be the focus. This requires an integrated and multi-layered approach that helps SMB firms improve operational cash flows and churn, meet operating costs and short-term debt obligations, access short- and long-term financing when needed and make excess capital work harder for them. Consequently, to successfully drive SMB banking in 2025, banks should invest in upgraded offerings and key capabilities to deliver holistic cash and financial management.

  • Cash: Strong payables and receivables management will be core to driving success in SMB banking in 2025 enabling efficient cash flow management. Capabilities like streamlined invoice uploads, automated reconciliation, high configurability and auto-debits for payables can reduce outstanding flows and optimise the overall cash cycle. Detailed cash flow positions and scenario-based forecasting can provide SMB firms with deep insights into upcoming flows and potential problems, helping avoid the last minute scramble to meet any shortfalls. Easy payments and instant settlements ensure that funds can be realised and reconciled with speed. Solutions like ‘Request to Pay’ can automate the presentation/collection of receivables in real-time, faster than direct debits and electronic bill payment and presentment. In addition, faster payments using the data-rich ISO 20022 standard can streamline reconciliations and improve cash flow predictions to help augment SMB banking in 2025. Ready access to country-specific real-time payment networks and clearinghouses cross border payment systems can improve transaction speed and flexibility.
  • Finance: Analytics and intelligence can speed up difficult and complex credit decisions through advanced scoring models that evaluate credit eligibility based on multiple scoring parameters and transform SMB banking in 2025. The borrowing capacities of SMB firms should be continuously assessed with inputs from cash flow projections, days sales outstanding etc., to improve and speed up credit decisions. External data from credit bureaus as well as non-traditional data sources can enhance credit decision effectiveness. With SMB underwriting requiring higher collateral requirements, centralised limits definition and collateral management can help banks offer pre-qualified or timely credit facilities, customised repayment terms while efficiently managing exposures. Invoice financing can be executed automatically, financed with real-time visibility of invoice status. In addition, streamlined digital processes can remove laborious paperwork and lengthy approval wait times. Machine learning can simplify and automate document management and data capture in the application processes.
  • Deposits and investments: Deposit flexibility, support for a range of instruments/transactions and automation can help streamline deposit operations and improve cash flow. Consolidated views of multiple accounts can help optimise cash and capital management. In addition, customised investment products that offer optimal safety, liquidity and better returns on idle cash than usual current accounts can redefine SMB banking in 2025 by helping make excess cash and liquidity work more for SMB firms.

Self-service: Full-fledged finance teams are a luxury for many SMB firms. Instead, SMB banking in 2025 will be dominated by intuitive digital self-service capabilities that can help SMB firms optimally manage cash and capital with full visibility and control. Persona-based experiences aligned to key functional roles that offer customised insights, views and functionality are key to enabling digital self-service. SMB banking in 2025 should empower SMB employees to manage payables and receivables easily, monitor cash flows and identify potential issues by themselves. Instant notifications, alerts, and dashboards should inform SMB employees of potential issues, unmet dues, or crossing set limits to avoid sudden or last-minute cash crunches. They should be able to manage deposits and investments or initiate loan applications and manage lines of credit digitally instead of visiting a branch or calling a representative. In addition, digital self-service capabilities can help banks integrate and scale relevant offerings to SMB firms efficiently and effectively.

Ecosystems: SMB firms face several challenges in efficiently managing accounting, taxation, billing, payroll etc. and increasingly leverage the services of third-party service providers. Consolidating data, views and relevant processes from different service providers into an integrated digital experience can unlock new operational insights and accelerate efficiencies for SMB firms. Strong SMB centred ecosystems with relevant partners are critical to offering integrated experiences and driving successful SMB banking in 2025. Systems that offer fine-grained Open APIs and industrialised API management can help banks accelerate building, curating or participating in such ecosystems and monetising new and innovative revenue opportunities. Experiences that integrate data and services from ecosystems can also help banks deepen relationships with SMB firms.

The SMB segment can hold the key to successful banking in the coming decade, offering significant power growth, revenue, and market leadership opportunities. Therefore, the time is now for banks to double down to leverage the opportunities of SMB banking in 2025 with customised and comprehensive offerings that offer firms the speed, flexibility and returns to operate efficiently and profitably in the fast-evolving world of commerce and business.

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