One of the hardest hit sectors within the financial industry over the past couple of years has been financial services to SMEs.

As a result, the issue has become a major political issue globally, and many institutions are now working hard to show their commitment to this market.

Best Practice in SME Banking - 2nd edition explains the range of products institutions can provide to small businesses, and highlights global examples of best practice. It looks at the state of the market across the different regions of the world, and shows how different products, services and strategies work better in different sectors. It provides information on how successful strategies in certain market segments can be transferred to increase business in others and looks at the trends that will shape the retail SME banking landscape.

Case Studies include; Barclays, BNP Paribas, Citigroup, Guarantee Trust Bank, HSBC, Key Bank, Lloyds Group, Raiffeson, RBS, Standard Bank, Standard Chartered, Towergate, Visa and Wells Fargo.

Key points contained in the report

• The critical success factors in the creation of an SME Banking programme, in particular the importance of organisational design and cross-selling.
• Optimising the delivery channel mix for SMEs.
• Emerging best practice in credit scoring for SMEs.

The report is informed with primary data obtained from interviews with industry players and non-public domain material supplied from banks. It pulls together information from a diverse range of sources into a compact and comprehensive overview of the sector.

The banking sector has taken a battering over recent years - funding has dried up, share prices have dropped through the floor and the reputation of financial institutions has never been lower.

Yet banks are still desperately needed. They are the oil the greases the wheels of international commerce. And nowhere is that more important than in the SME sector. Small businesses are more reliant on immediate services and sources of funding than their larger counterparts, who have made arrangements that last for years.

But following the downturn, the market looks set to recover. Banks have never forgotten the importance of small businesses to their business, and financial organisations are now looking to bolster their profit margins by increasing the products they can sell to this valuable sector of the market.

This is backed up by support from the public sector. At a transnational, national and local level, authorities are making efforts to help SMEs thrive. Supporting SMEs has not always been on the agenda for many organisations, but it certainly is now.

The channels through which banking services to SMEs have been delivered have traditionally been branches. But while a branch network remains vitally important, other delivery channels are gaining in size. And the requirements of customers is also changing - not everyone needs or wants the 'personal touch' any more, perhaps as a result of the reputational damage that has occurred.

Three key factors are critical for success when offering banking services to SMEs. First is the need for a commitment to the market - businesses want to know you'll be with them through thick and thin, not just when times are good. Secondly is the quality of the marketing effort. Only by ensuring your customers - both new and potential - are aware of the products you offer will you attract them to your business. And third is risk management. Not every business is good business, and only those organisations who can pick out the winners will thrive.

Products: Adding value

In a complicated financial landscape, the product portfolio of a financial institution offering products to SMEs needs to be wide and varied. And in many cases, it's not enough to just offer the 'vanilla' option. Customers now expect added value in whatever they buy.

But this can be combined with advances in technology, which allows banks to reduce costs while improving service and product availability. This continued innovation is essential - SMEs are known in many ways to be at the leading edge when it comes to technology and they will expect their suppliers to be there too.

Insurance: a growing sector

Even before the credit crunch meant the availability of funding dried up, many financial institutions were looking at the provision of insurance as being a growing side to their business. It provides stable returns and encourages customer loyalty over longer periods of time.

And as businesses grow, the requirement for insurance grows with them, which provides additional revenue streams when the stability of the business could mean reduced income from other sources. 

Cards: the new cash

As cheques are being phased out across most of the world, and cash often does not give businesses enough reporting and account management information, the payment card in all its forms is gaining greater importance.

The range of payment cards now means there are plenty of options for SMEs, yet take-up of the various cards has been slow in many quarters. However, card issuers are coming up with plenty of choice designed to attract as many people as possible. As the example of American Express shows, creating a suite of products with differences that would be significant to sections of the community means that take-up is likely to be considerably higher.

Risk management

Central to every institutions credit practices has to be risk management. Because small businesses often don't have the financial information - or indeed the financial expertise - that larger corporates can provide, profiling them in terms of their ability to repay any borrowing can be a tough task.

But as the example of Experian shows, a strategy that encompasses as many variables as possible will give the lender the most comprehensive view of whether or not an account holder is an acceptable risk for finance.

In many cases, there are options for protecting any lending, including liens on the assets of the business. Increasingly, small business owners are being required to use their personal property as collateral too.

Attracting women

Female business owners make up a large, and growing, segment of the SME sector, and tailoring products and services to them can bring large rewards. While there remains a danger that by targeting women specifically, banks can risk alienating the very customers they are keen to attract, the experiences of Wells Fargo, KeyBank and Bank of Scotland show that not only are women keen on such services, they often become a better business relationship than the average.

Focus on Europe

As the world's largest trading bloc, Europe is a vital market for the banking industry. But at the same time, the differences between the markets within the continent create their own challenges. As the examples from Barclays in the UK and Raiffesen in Central and Eastern Europe show, the key to institutional success is both a commitment to the market and an understanding of the local differences.

Focus on North America

The banking sector in the US has been shaken badly by the financial turmoil, and there undoubtedly still going to be further changes. But the financial institutions still involved in the market have restructured their products and services to continue to attract business from the SME sector.

In Canada, meanwhile, the fallout from their neighbour's problems has had barely a ripple. Most of the domestic banks are trading much as before, which has significantly helped the SME sector in the country. The growth in older people setting up businesses has led in some cases to a different attitude amongst the banks, and a realigning of their product strategy.

Other markets

While Western economies may have been at the forefront of provision to small businesses, the examples of banks from South Africa, Asia and the Middle East show that the rest of the world has, at the very least, caught up and in many cases the offering surpasses that offered in more established markets.

Executive summary

Overview

· Defining SMEs and VSMEs

· The global SME market

· The credit crunch and its effects

Products

· Current and checking accounts

· Savings and investments

· Working capital support

· Structured term lending

· Government subsidies, funding and loans

·  Money transmission

· Internet banking

· Retirement planning

· International banking services

· Factoring

· Leasing

· Commercial property finance

· Other services

Insurance

· Introduction: a growing sector

· Public liability

· Employer liability

· Indemnity

· Contractor

· Office

· Retail premises

· Insurance for professionals

· Product liability

· Vehicle insurance

· Fidelity insurance

· Key man protection

· Directors and officers insurance

· Business Interruption Insurance

· Transit insurance

· Money insurance

· Credit insurance

· Travel insurance

· Hospitality industries

· Surgery and medical businesses

· Case study: Towergate

Payment cards

· Introduction: the new cash

· Business card

· The online debit card

· The offline debit card

· The deferred debit or charge card

·  The travel and entertainment card

·  The revolving credit card

·  The executive business card

·  Fuel, fleet and lodged cards

· The fleet card

· The lodged card

· The distribution card

· Card designs for business

· Case study: American Express

Attracting Women

· Introduction: A compelling proposition

· The United States market

· Case study: Wells Fargo Bank

· Case study: KeyBank

· The UK market

· Case study: Bank of Scotland Corporate

· The Australian market

· Case study: Westpac

Focus on start-ups

· Introduction: customers of the future

· Attracting start ups

· Value of branch networks

· Business banking for non-nationals and new immigrants

· Case study: Barclays

· Advice and support

· Grants and Government funding

· Attracting venture capital

Islamic banking

· Introduction: neither a borrower nor a lender be

· Dealing with credit

· Financing growth

· Savings vs. investments

· Case study: Islamic Bank of Britain

· Case study: Emirates Islamic Bank

Marketing to SMEs

· Strategies for gaining market awareness

· Online marketing

· One-to one positioning

· Building product suites

· Value of personal business managers

· Case study: Lloyds TSB

Risk management

· Assessment strategies

· Secured vs. unsecured

· Holistic lending

· Scoring

· Credit management

· Fraud detection

· Case study: Experian

Services to VSMEs

· Gaining value from low turnover businesses

· Insurance for sole traders

· Microfinance

· Part time businesses

· Case study: Grameen

Focus: Europe (inc UK)

· Trends

· Services and demand

· Research

· Specialist finance houses

· Case study: Raiffeson Bank TBC

Focus: North America

· Trends

· Services and demand

· Research

· Community banking

· Case study: Citigroup

Focus: Other markets

· Trends

· Services and demand

· Research

· Case study: Standard Bank

View full Summary Report

To order a copy of this report:

- contact us by email

- call us on +44 (0) 20 7563 5638

VRL publishes around 30 in-depth reports every year. Containing proprietary data, in-depth analysis and considered intelligence, VRL reports review the most pressing issues and trends impacting on the world of finance and cover a broad range of topics. These reports are compiled by associate editors, who are specialists in their field and contain original, previously unpublished content, based on fact and expert opinion. VRL reports provide the analytical intelligence needed to make informed business decisions in a concise and cost-effective manner, and often negate the need to incur costly external consultancy services.

In a recent customer survey on reports, conducted by VRL, 92% of respondents stated that VRL reports give access to information that is otherwise difficult or time-consuming to acquire. 93% said it gave them a good overview or summary of market developments. Overall 83% rated quality of information as excellent or very good and content and scope of coverage was rated at 94% and 82% respectively

Retail Banking Products:

Publications:

Retail Banker International
Banking and Payments Asia

Conferences:

Retail Banking and Cards Forum, September 2010, Bahrain (TBC)  
Retail Banking/Payments Innovation, Kuala Lumpur, 11-12 May 2010

Roundtables:

Retail Banking/Payments Asia Roundtable, detailed subject matter TBC, Hosted by Titien Ahmad, VRL Asia-Pacific, and Hugh Fasken, Editor, Retail Banker International, August 2010

Reports:

Bancassurance: The Lessons of Global Experience in Banking and Insurance Collaboration
Bank Mergers and Acquisitions: The Lessons of Global Experience
Best Practice in SME Banking - 2nd edition
Banking And Risk: Principles Reassessed Following Subprime 
Branch Banking Best Practice in the Worst of Times 
Call Centres in Retail Banking - the Path to Excellence 
Consumer Finance in Latin America
Creating Female-Friendly Financial Services: Strategies, Opportunities and Lessons   
Creation from Destruction: Restructuring Financial Services Organisations 
Cross-selling in Retail Banking: Meeting the Revenue Growth Challenge
Indian Retail Finance 
Knowledge, Social Media and Learning in Financial Services                           
Non-Listed Banking Models                                                                                   
Peer to Peer Lending                                                                                      
Post Office Financial Partnerships
Remittances 2010: Products, Players and Strategies
Restoring Trust and Credibility in Financial Services
Retail Financial Services in China 
Retail Finance in Japan
Retail Financial Services- An Overview
Self Service in Retail Banking: Developing and Implementing a Successful Self-service strategy
Segmentation in Financial Services
Social Media in Financial Services
Strategies for Banking the Unbanked: A Global Market Opportunity
Survey of Global Islamic Finance
The Branch is Back   
The Business Case for Biometrics in Finance - 2nd Edition 
Mobile Banking and Payments
Web 2.0 in Financial Services