How NFS is securing SME market share for banks

With SME’s accounting for 90% of all firms, 70% of the workforce, and 50% of GDP worldwide, SME banking is a critical opportunity for banks looking to improve financial performance. 

In the past decade, non-financial services (NFS) have been changing the landscape of business banking and the growing importance of integrated financial services for small and medium-sized enterprises. 

Increasing digital adoption among SMEs, technological advancements and increasing competition from non-traditional players, are creating demand for seamless financial services integrated with everyday business operations. 

Offering services, such as, networking support, business consulting, accounting and integrated websites and e-commerce, alongside banking and payments products are proving to be lucrative.

According to Deloitte, by 2025, many banks are expected to prioritize boosting non-interest income, including through non-financial services, as a strategy to maintain profitability in a changing financial landscape.

This is requiring banks to shift their focus from short-term returns to long-term profitability. It’s an important opportunity for them to revolutionise their relationship with SMEs by leveraging and developing the SME ecosystem via new platform models.

Over the past few years BaseKit has seen increasing interest from banks in our white label website, e-commerce and bookings software for small businesses. We’ve since partnered with leading global payment providers and challenger banks to integrate our software with banking products to help them offer a better small business banking experience. 

Strategies for implementing non-financial services

Throughout the business lifecycle, banks already act as trusted advisors, however those that can offer integrated technology packages that combine banking with non-financial services are in a far better position to adapt to the rapidly evolving needs of small businesses.

Strategies for implementing non-financial services include:

• Tailored propositions: which involves customising non-financial services offerings to meet the specific needs of SMEs in different segments. 
• One-stop-shop: Providing an all in one solution including financial and non-financial services.
• Digital transformation: Investing in digital capabilities to enhance the SME banking experience, including online and mobile tools.
• Partnerships: Outsourcing non-financial services through partnerships.
• Ecosystem approach: Offering a single dashboard for core products, non-core services, and connections to ancillary service providers.

The results from those companies already implementing non-financial services, speak for themselves. According to Skaleet, 88% can demonstrate increased customer engagement, while 85% report improved market share.

Interestingly, non-financial services are also demonstrating huge growth potential with women-led SMEs as well. According to an IFC and FMO report, banks already integrating non-financial services into their WSME-focused offerings have seen positive ROI within one to two years.

A report by McKinsey & Company also demonstrates how lucrative these strategies can be. 

The report says 30% of SMEs say they don’t use their primary bank to meet their needs for some common add-on services, representing an opportunity for banks to deepen customer relationships by cross-selling cash flow products such as small-business credit cards to their SME clients.

The McKinsey report also highlights the appetite from SMEs for an all in one offering from banks, it found that 50% of SMEs prefer obtaining all of their commercial tools from a single provider.

The importance of seamless transactional services

Banks are increasingly integrating store builders into their services for small businesses as part of a broader strategy to become one-stop shops for business enablement tools. 

This integration allows banks to offer a comprehensive digital experience that takes small businesses from their first bank account to their first online transaction.

They can do this in a variety of ways, such as, acting as an orchestrator, by partnering with white label e-commerce platforms, allowing them to offer market tested software quickly under their own brand, keeping customers within their own ecosystem. 

They can also integrate white label store builders through APIs, either directly or through payment service providers for a customisable payment journey and seamless integration with existing banking services.

The case for partnerships as a strategic imperative 

There is a growing recognition among banks of partnerships as a strategic imperative, not only to stay competitive but to unlock new revenue streams and enhance service delivery.

The IFC and FMO report also found that 94% of 34 banks surveyed globally say they outsourced some or all of their non-financial services via partnerships.

By embracing open ecosystems, financial institutions can create more value, more quickly for small to medium sized businesses, while also benefiting from new revenue streams and stronger customer relationships. 

And SMEs do recognize the value of integrated ecosystem platforms with banking and non-banking services. An IBM Institute for Business Value report among SMEs globally found that “in the pursuit of optimising business efficiency, SMEs place a premium on instant payments and streamlined digital access to all banking and non-banking services”. 

When SMEs were asked, ‘Which services should be improved to better support the operational efficiency of SMEs?’ A super app across banking and non-banking services was second on their list of expectations, behind Instant payment for all operating expenses.

Ultimately, small businesses need agile and responsive banking partners to succeed. If more banks can offer more innovative and accommodating solutions via non-financial services, they can better empower small businesses to grow, and ultimately their market share will grow too.