The changing face of business banking

Industry News8th November 20180 CommentsStephen Dinsmore

Remember the days when the bank manager used to sit behind a big mahogany desk, fill out ledgers by hand and if he personally believed in you, that was good enough to get your loan application approved then and there? Me neither, but you get where I’m going with this…

The way SME’s are using their bank is going through possibly the biggest change the sector has ever seen. Around eight years ago, I was a Local Business Manager at one of the larger banks, with a portfolio of 300 clients turning over up to £2.5m. There were around fifteen of us across West & South Yorkshire, based in local branches, serving our clients. That number is now around 2 or 3 face-to-face managers, with everyone else given an over-the-phone contact, with this approach commonplace amongst banks.

Some of this is due to advances in technology – a visit to the branch is no longer needed to make payments and banking cheques is almost a thing of the past – some down to customer preference of not needing/wanting to see the bank manager unless it was under exceptional circumstances.

Some of it, however, is down to the way banks now look after their business clients. A lot of the major banks have undergone a “ring-fencing” exercise, which separated the banks in to two. Corporate Banking with businesses with turnover of more than £6.5m and Business Banking, those with turnover under £6.5m. The feedback we receive from a lot of clients in the second category is one of disinterest from the bank when it comes to lending, a lack of trust towards the banks and, more often than not, a lack of knowledge of who their Relationship Manager is. This usually
comes to a head when businesses are looking for something outside of day-to-day banking, e.g. funding.

As banking relationships become increasingly transactional, we have seen new entrants into the business banking market such as Revolut, Tide and Starling Bank. These banks pride themselves on a smoother account opening process, better technology and user experiences than SMEs are currently getting from their banks.

Combined with the rise of the Alternative Funding market, more and more SMEs are using the combination of new banks and alternative funders to fill the gap left by the banks. Where they no longer have a relationship manager, the professional advisers have been left to fill the gap, providing education to businesses of the funding options available, whether this be from the banks or the alternative finance marketplace. This is evidenced with the rise of the Alternative Funding market, which provided more than £5bn of new funding in 2017, compared with net bank lending which remained flat against the previous year.

When I was a Local Business Manager, I often found that the small business owners were great at running their business; but required a lot of guidance around things such as borrowing money, insurance, legal guidance and I was on-hand to assist where I could; or refer to professionals within my network.Seemingly I have come full circle and am assisting businesses as I previously was, the only difference being that we now have 150+ funders that we work with, rather than just the bank!

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