Innovation in SME Funding — a Solution for the Squeezed Middle?
SMEs and start-up entrepreneurs in many ways represent the “squeezed middle”. They are typically hit hardest in times of crisis — be it Covid, inflation or rocketing energy costs. But these two groups are also likely to be more digitally savvy and adaptable and, as such, represent a significant force for change. They are much more willing to embrace change in traditional financial services provision, particularly with the advent of e-money accounts. According to the FCA, more than half of SMEs (56%) have decided to change their business models in response to changing market conditions, with the majority leaning towards digital channels.
Research published by EY in July 21 observed that SMEs are “going through a period of significant change and need their banks’ support”, noting that banks “need to focus on the real needs of SMEs, get the basics right….and become more flexible”.
These sentiments are echoed in Greengage’s recent market research where we spoke to around 70 business entrepreneurs and SMEs who were asked to rate their experience of payments services. We wanted to know if this vital market segment in particular was receiving services that met their genuine business needs or whether they felt that more could be done to support them.
At a high level, our research shows that nearly half of businesses polled are less than satisfied with their account provider. This is especially true for those businesses involved in digital assets and/or cryptocurrencies, who said that they are more likely to have a less than satisfactory relationship with their account provider. One particular — and common — pain point is the level of customer service received which was rated mediocre overall and worse for those involved in digital assets.
Key statistics
• Of the businesses polled, digital assets/cryptocurrencies are the core focus of 35.3% of respondents, with 79.4% having some interest in them. The majority of respondents (58.8%) have traditional accounts, 28.0% have traditional and Electronic Money Institution (EMI) accounts and 13.2% have only an e-money account.
• Many are less than satisfied with their current account provider, with nearly 65% of respondents rated their current account provider 3/5 or less
• In terms of customer service, nearly 65% rated their account provider as “average” (3/5) or less than average
Asked to rank the qualities that an account provider should possess, respondents chose security, trust and ease of access as the top three most important services or qualities. Some 88.9% of respondents (with at least an interest in digital assets) rated security as top of the list (5/5) in terms of importance, followed by trust at 75.9% and ease of access in third place at 63.0%.
A deeper dive into the results looked at how respondents’ involvement with digital assets or cryptocurrencies affected their responses. For those with digital assets and/or cryptocurrencies as a core business focus, over half (54.2%) were less than satisfied overall with their current account provider. (On the other hand, only 14.3% of businesses with no digital remit were less than satisfied).
Similarly, 92% of businesses with a core focus on digital assets and/or cryptocurrencies rated the customer services of their account provider as average or less than satisfactory. Conversely, 85.7% of businesses with no interest in digital assets rated current customer service levels as average (3/5), although none gave a rating below that.
What does this all mean? It seems clear from our research that businesses with at least an interest in digital assets tend to have a worse relationship with their account provider than those with no interest. Similarly, businesses receiving lower levels of customer service are willing to pay more to get the services they need from their provider. Looked at from the other side, it also follows that account providers that charge higher prices must ensure that they are delivering superior customer service in order to entice customers into switching providers.
However, it is not simply a case of either/or with respect to traditional traditional services versus EMIs. Instead of paying a current account provider more money for a higher tier service, or switching to a more expensive account provider, our research shows that businesses with both types of accounts had higher levels of overall satisfaction and customer service than those with only one.
That said, with over 700 EMIs in Europe (of which 235 are in the UK), it is of course important that those choosing e-money accounts understand that they are not absolute proxies for traditional accounts, and may not — yet — be able to offer the same degree of rigour with respect to security, risk and trust.
The rapid growth of EMIs as an alternative to traditional payment services, and their greater enthusiasm to embrace new cryptocurrency assets alongside cash (according to the FCA more than one in ten EMIs now accept crypto deposits and payments), means that they will almost certainly be subject to greater customer demand (and increased regulatory /supervisory scrutiny), with respect to KYC/AML (security), safeguarding of assets/funds (risk) and broader customer services and protections (trust).
As such, in the shorter term, businesses with traditional accounts should perhaps look to open a supplementary e-money account in order to leverage the product and service differentials (and opportunities) available from each. When it comes to payment services, it is clear that one size does not fit all.
To learn more, listen to our podcast series, The Gage Episode 8 — What SMEs Want in Payment Services: Greengage Survey Findings
Read our latest whitepaper ‘Greengage SME and Digital Payment Services Survey Findings’
