Making banking human again

It might sound like a contradiction, but technology needs to make banking human again. After years of not knowing how to create the most engaging digital banking experience, banks today are beginning to realise their true potential by combining data, advanced analytics and artificial intelligence.

Although progress has been made, there is still much work to do, especially in the small medium-size enterprise (SME) sector. Digital banking is ubiquitous today, and every banker recognises that the experience is key. But do banks really know their SME customers? And how can banks innovate to help their SME customers solve real-world challenges?

Kam Chana, Temenos

A small business owner may have the right skills, products or services, but then start drowning in the admin, bureaucracy, regulation, and management required to run and grow a business.

Do I have enough cash? How can I make it last? Does my bank care about my business? Do they understand me? They are charging me how much interest?! Do I have control over my costs?

Banks cannot afford to miss out on the huge opportunity that the SME sector represents. In the UK, there are about 5.7 million businesses, of which 99% are SMEs. In fact, SME businesses generate almost half of the country’s revenue and provides 30% of all employment. They represent a growth segment that is forecast to contribute £241 billion to the UK economy by 2025, a 19% rise from 2018. SMEs are the backbone of the economy, yet often don’t receive the attention they deserve.

SMEs require a different style of banking than larger businesses. While large corporates have a culture, SMEs have individual personalities. A standard, siloed corporate banking solution may not work for them, and they may need something more robust than an enhanced retail offering. In order to best serve SMEs, banks need technology that bridges the worlds of business and personal, providing the agility to respond to either’s needs as they pop up.

Banks can harness the power of data and advanced analytics to join SMEs on their individual journeys, as they evolve from small traders to larger corporates. A bank with both a clear view of the business data, as well as the human needs of the owners, can see SMEs for their unique requirements and potential.

The power of data cannot be understated. It will not only help banks understand what SMEs need and when they need it, but also provide unique insights into their journey as a business. By far the most powerful use of data is to facilitate a data-driven approach. This helps the bank make decisions which are better aligned to the SME’s aspirations, and helps them provide recommendations for the right products. Data can be analysed from the SME and from other businesses with a similar profile – enabling decisions based on successes not guesses.

Leveraging data can also help banks better understand and provide automated guidance to SME customers in real time. As they continue to evolve the way that they serve SME customers, banks should begin to take advantage of explainable AI – artificial intelligence that offers banks, their customers, and regulators transparency into how and why decisions are made. By capitalising on explainable AI, banks can engender trust by ensuring their SME customers know why the proposed product or advice is right for them.

SME owners do not have time to gather data and make comparisons, and they don’t have access to data on other businesses like theirs. But banks do and can offer great value by doing the heavy lifting for their customers, taking the burden off their shoulders. By understanding the individual business and performing a smarter analysis of cash flow, banks can help SMEs to not only project future positions but also to highlight pinch points and foresee when working capital might be insufficient.

They can tailor activities specific to the SME’s needs based upon future expected commitments and revenue data. This includes highlighting which payables could be deferred, offering discounts to customers for paying early and providing short term credit options – as well as invoice finance – all ranked by which options other customers found most helpful to their business. This creates a win-win scenario where the customer grows a healthy business and continues to provide revenue opportunity for the bank. For the business owner, it saves them the time and the headache of worrying about how to stay afloat and allows them to focus on building prosperity.

The banking sector is evolving. It is beginning to realise that cloud-native, agile technology holds the key to create a more human and personalised approach to customer engagement. Recent research by Temenos and the Economist Intelligence Unit (EIU) shows that AI is becoming a key part of the new technology mix, improving personalisation and enabling more tailored offerings. It shows that 61% of banking executives globally think AI will create better value for customers by 2025.

There are certainly still challenges to overcome. They stem from legacy culture and a lack of skills to apply insights. There are brave organisations, particularly challengers like Judo Bank, who are trying different things like experimenting with design thinking to instil more humanity in banking. Placing relationship banking at the heart of its strategy, Judo Bank uses a digital-first, API-first approach to lower costs and increase the value of services and products to best serve its customers.

SMEs have long been the engine room of the economy, quietly surviving and growing as best they can with limited support. But times have changed – SMEs are empowered and challenging old ways of doing business. They form a burgeoning market with diverse needs – one which requires a more human approach than ever to banking – one that meets the disruptive, customer-focused nature of their own business models.

By Kam Chana, senior digital strategist, Temenos