How Banks Can Build a Partnership Ecosystem to Win SME Sector.

Today, building a partnership ecosystem to attract small and medium-sized enterprises (SMEs) effectively can be a new growth point for Banks and financial institutions. 

Why SMEs?

Usually underrated and underserved SME sector plays a vital role in the economy, accounting for nearly all businesses and a significant share of employment, while also contributing substantially to GDP. However, despite their importance, most commercial banks generate less than a quarter of their revenues from SMEs. Here are some facts:

• SMEs represent approximately 99% of all firms in OECD countries. 
• They provide about 70% of all jobs in these countries. 
• In high-income countries, SMEs contribute over 50% of GDP. 
• Despite their economic importance, most commercial banks (56%) derive less than 25% of their revenues from SMEs.

SMEs are the backbone of the economy, job creation, and overall economic stability. However, SMEs have significant challenges, including limited access to finance, technology, and advisory services. This is where banks can step in and lend a helpful hand to the sector.

By integrating third-party financial and non-financial services, financial institutions can address these challenges, creating a win-win scenario for both SMEs and their growth. Banks can build a partnership ecosystem to implement third-party tools and services effectively.

Collaborating with an existing service/product provider outside the traditional banking sector, allows financial institutions to use top-tier services rather than developing them from scratch. In other words, it will be easier to implement any service and quickly get users' feedback.

Considering a partnership ecosystem approach, banks should be aware of several steps that will help them navigate this journey smoothly.

Put SME first.

To begin with, financial institutions must place the SME customer at the center of their strategy. Understanding the unique needs and pain points of SMEs is critical. Unlike larger corporations, SMEs often struggle with issues such as cash flow management, accessing credit, and adopting new technologies. 

Financial institutions must go beyond offering standard products and instead tailor solutions that directly address these challenges. This requires a deep dive into understanding the specific operational pain points that SMEs face. Engaging with SMEs in the early stages of product development through surveys, interviews, and data analysis can ensure that the solutions developed are both relevant and effective. Co-creating solutions with SMEs not only enhances the relevance of the offerings but also builds stronger bonds between the financial institution and its SME customers.

Define why you are doing it.

Defining clear objectives is another crucial step in building a successful partnership ecosystem. Financial institutions need to have a well-articulated understanding of what they want to achieve through these partnerships. This helps in aligning the partnership strategy with the broader business goals of the bank. Whether the aim is to enter new markets, reduce customer acquisition costs, or enhance customer loyalty, having specific, measurable objectives is essential. 

Additionally, setting clear success metrics helps in evaluating the effectiveness of the partnership ecosystem. These metrics could include the number of SMEs served, customer satisfaction scores, and the impact on loan default rates. Such metrics provide a tangible way to assess the success of the partnerships and make informed decisions about future investments.

Pick partners that resonate with SMEs.

The selection of partners requires careful consideration. Not all partners will be a good fit for the long-term vision of the financial institution. The focus should be on identifying partners whose products and services complement the core offerings and add real value to SMEs. For example, a financial institution might partner with a fintech company specializing in real-time payment processing or a technology firm offering marketing tools to help SME build its online presence. 

Create data-sharing frameworks.

Openness and transparency are essential components of a successful partnership ecosystem, particularly when it comes to data sharing. Today, data is a crucial asset, but it also comes with significant risks. Financial institutions must set up secure and transparent frameworks for data sharing among partners. This might involve adopting open banking standards or creating API gateways that facilitate seamless data exchange while ensuring that sensitive information is protected. 

Innovate through partnerships

Leverage the unique capabilities of your partners to offer innovative solutions that differentiate your financial institution from competitors. Each partner brings distinct strengths, whether it’s in financial tools, legal tech, or non-financial products. By integrating these capabilities into the ecosystem, financial institutions can create comprehensive, differentiated solutions that address the specific pain points of SMEs. It is important to avoid offering generic "Me too" products that simply replicate what is already available on the market. 

In conclusion, building a successful partnership ecosystem for engaging SMEs requires a strategic approach. By focusing on understanding SME needs, defining clear objectives, carefully selecting partners, ensuring secure data sharing, driving innovation, educating and aligning partners, and committing to ongoing support, financial institutions can create an ecosystem that not only helps SMEs thrive but also positions the institution as a trusted partner in their growth journey. 

Connect with Karol Andruszkow to learn more about the partnership ecosystem for banks and financial institutions.

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