Cracking the code of SME banking
Banks often see the SME segment as unattractive and costly to serve. According to this view, the segment generates high levels of risk and operating expenses, and has limited growth potential. As the resulting economic downturn is expected to increase loan losses, the Covid-19 crisis is unlikely to alter this perception. Moreover, the impact of zero- to negative- interest policies, now apparent in most mature markets, is also affecting the profitability of a segment which traditionally produces more deposits than loan volumes.
However, BCG still believes that the profitability of SME banking units can be significantly improved. By tailoring and digitizing the most relevant coverage models, banks can transform their relationship with smaller companies. By choosing the right digital strategy, they can build smarter sales models to streamline their operations and meaningfully improve the customer experience, leading to higher revenue and lower operating costs. BCG’s experience suggests that banks which shift their SME segment toward digital and data-driven models can increase revenue by 15-20% and reduce costs by 15-30%, ultimately raising their return on equity by 15-25%.
In the wake of the Covid-19 crisis, this BCG publication, written with the support of Efma, has three objectives:
1) Establish current perspectives in SME banking
2) Outline new and accelerating trends in SME banking
3) Examine the increasingly critical role of analytics in SME banking.