How is it possible to evaluate whether banks have been listening (and more importantly reacting) to their SME clients? And why is this even important?
The answers to the second question should be obvious for numerous reasons, but here are some important ones. Firstly, listening and acting upon feedback and trends will enable banks to cater better to SMEs’ financing requirements. Secondly, service levels to SMEs will improve and therefore enhance revenue realisation per client.
Thirdly, it will save banks’ losses – if they are close to clients, record feedback on the state of the market and act upon the same in a timely manner. Fourthly, clients deserve to be listened to. And, lastly, from a societal and government point of view, the SME market is a priority area and deserving of better financing and services.
To keep things simple one can do two things to evaluate whether banks have been listening to their SME clients or to the industry. First, we can look at the level of recent innovation in the industry. Second, we can ask clients what they think.
Innovation is a great indicator of general listening or anticipation skills of sellers. At a macro level, one can look for innovation and product development among banks over the past, say, 10 years.
Innovation not only can be driven by need-anticipation but also by necessity – of a demanding market and the need to carve out a niche to sustain profitability and growth. The fact that innovation usually results in serious profitability and brand differentiation is pretty well known and deserves no further explanation.
A quick look at products and services on offer in this space, across banks, reveals a woeful lack of innovation. Products are the same old content with new packaging. There are no industry-specific solutions to speak of.
Even if one were to look at the introduction of new products in the SME lending space (not merely business loans but structured working capital facilities), there has been nothing new except perhaps for the introduction of factoring/invoice discounting by some banks. Of late, we have seen true factoring (non-recourse to borrowers) being launched, tentatively, in Dubai.
There have been a few products – rental financing and so on, (but) simple variations of a basic product.
Now to the second yardstick – asking clients whether they thought banks were listeners or not. I did a brief survey of 10 SME clients and here are the results.
SME owners say banks have been hearing but not listening. There has been no real palpable proof of feedback having been taken on board either to address service levels or to come up with solutions rather than generic products.
Relationship managers, the face of banks to borrowers, business owners feel have neither the wherewithal nor the interest in enabling any change or reaction in banks.
Secondly, owners complain that other than relationship managers, they rarely have any exposure to others in the bank. In the old days, immediate supervisors to relationship managers or sometimes even senior managers, used to visit clients, to solicit feedback, encourage complaints, listen to gossip and open another channel of communication with clients. This rarely happens any more.
Thirdly, no owner recollected visits from any third party – either for market research, service quality surveys, “mystery shopping” or such. However, they did comment that customer interaction with the retail business of banks was good – constant calls, telephonic surveys, and so on.
Lastly, owners strongly complained about a) frequent change of relationship managers and the very low frequency of visits (some said they were visited once a year for the annual review of credit facilities) by relationship managers. Both make for poor listening on the part of the bank.
What is to be concluded from all this? Why the deaf ears? And what are the implications?
It appears banks are happy with the status quo – pressure on revenue growth has not translated into innovation but a focus purely on loan growth. Asset growth means banks do not mind growth coming from interest income – the need to grow fee income is obviously not pressing enough.
In a tightening credit environment, the natural result of a market where everyone is selling near-identical products will be a price war. We have seen spreads come down this year. The pressure of revenues coupled with a tough lending environment will call for even more courage to innovate.
The generally poor levels of service as reported can be a “low hanging fruit” for banks. It is easier to upgrade service levels than to innovate. The banks who address this will do several things – respond to crying needs of better service, therefore serve clients better and be rewarded with higher utilisation of their credit facilities. This in turn will raise their realisation per client.
In conclusion, it appears from all counts that banks have to be far more in tune with their clients’ needs to maintain profitability – especially when times are tough.
Innovation is one thing, and we cannot expect all banks to be innovators. That does not happen in any industry, but surely enhancement of service levels and opening channels of client communication has become a must – both to save losses and enhance revenues.
The writer is the Managing Director of Vianta, which works with SMEs in raising bank finance.