Bankers see SME (small and medium enterprise) clients as their biggest opportunity for growth, while regulations and compliance remain they're biggest concern, according to survey results released today by FundTech, a transaction banking solutions provider. The survey of 137 banking executives from more than 100 institutions was conducted at FundTech's annual North American Insights client conference in Arizona last month.
Those surveyed saw great potential in serving SME clients: 95 percent of the executives described this potential as equal to or greater than any other present opportunity, and 60 percent of them said that they are seeing high demand from their SME clients for new services.
This potential in SME clients is very appealing to banks because they are looking for new revenue streams in the face of regulations, says FundTech's Chief Marketing Officer George Ravich. "We're talking about millions of small businesses, that's a big pot of gold," he points out.
But Ravich says that earning revenues from these customers has traditionally been a challenge. Many of these businesses use retail banking platforms rather than business or cash management platforms that banks can charge fees for. "Small businesses don't want to spend too much money. So how do you make a profit with them?" Ravich adds.
The key to moving SME clients from their free checking accounts to fee-based services, Ravich suggests, is in mobile offerings: "For the SME market there is a great opportunity for mobile services. Mobile offers great conveniences, new capabilities, and it fits their lifestyle." Ravich notes that many small businesses operate out of a mobile office, such as a contractor who works out of his pick-up truck. So mobile banking services are a natural fit for these clients.
Ravich says that many SME clients would be willing to pay for mobile services that allow them to take mobile point-of-sale payments from customers, remotely deposit checks, transfer money between accounts, pay bills and check their balances. FundTech's survey found that 38 percent of executives see developing or expanding their mobile channel as their bank's top priority for the SME market.
Reducing the cost of services to the SME segment is also a major priority, the survey found, with 34 percent of those surveyed saying that was their top priority. The key to that cost reduction, Ravich remarks, is in automating services so there is no need for for customer service intervention in the service process. Ravich says that FundTech worked with Citigroup on automating services and helped save the bank $2-3 million per day.
The FundTech survey also found that regulations are the biggest worry for banks in the near future. More than 30 percent of those surveyed said that they were either unsure about whether their department was in compliance with new regulations or had many questions about compliance. Nearly 50 percent of them said they "mostly" understood what actions they needed to take to be in compliance.
Ravich says that a lot of this uncertainty is due to conflicting laws, uncertainty over how agencies will implement new regulations and overlapping regulatory bodies.
Many of the new regulations are already having unintended consequences, he adds, using the example of Dodd-Frank 1073, a regulation designed to add more transparency to the international payments market. The rule requires banks to provide remittance data - such as how much they will charge for the transaction and how the payment will arrive to the recipient - to customers upfront when they send an international payment. However, since rates change and banks often don't know how many other banks they will have to reroute the payment through, it is difficult for them to provide this data upfront. As a result many smaller banks are pulling out of the international payments market altogether, Ravich says. (See our coverage of how Western Union is partnering with regional and community banks to fill this void).
This uncertainty is further clouded by the expectation of more regulations to come, with 56 percent of the survey's participants expecting major revisions in coming years to Dodd-Frank. Also, 33 percent of the participants believed many more regulations are on the horizon. "I think this state of confusion will continue," Ravich predicts. "People will be trying to figure out the new 'new' for some time."