Divergent Views Between SMEs And Banks Reveal Opportunities For Innovation

A recent study by IBM's Institute for Business Value and the Banking Industry Architecture Network (BIAN), in collaboration with the SME Finance Forum, uncovered a significant gap between small to medium-sized enterprises (SMEs) and the financial institutions that serve them.

The Future of SME Banking – With SMEs representing 90% of businesses worldwide, financial institutions have a significant opportunity to tap into this market with tailored, technology-driven solutions.

The global study highlights how banks may be missing growth opportunities within this critical market segment due to their focus on risk management, regulatory compliance, and the high costs of catering to a diverse array of SMEs.

The report, Banking for Small and Medium Enterprises: Serving the World Economy with Data and AI, presents findings from a survey of SME business leaders and senior banking executives.

SMEs make up 90% of all businesses globally, contributing 70% of employment and 50% of GDP. However, there is a disconnect between what SMEs need to grow and the services banks prioritize.

For instance, SMEs seek tailored solutions, compliance assistance, and sustainability guidance, while banks emphasize apps, relationship managers, and fraud monitoring.

Shanker Ramamurthy, IBM's Global Managing Partner for Banking & Financial Markets, noted, "Emerging technologies like generative AI and automation offer financial institutions the tools to better serve SMEs and foster growth in this pivotal sector."

He further emphasized that banks have the opportunity to close the service gap by leveraging advanced technologies alongside a robust data strategy.

The study found that only 6% of bank executives gave their institutions an "A" grade for their SME services, with nearly half rating themselves a "C."

This discrepancy points to a largely untapped market where nimble financial institutions could differentiate themselves by offering more tailored, technology-driven solutions to SMEs.

IBM’s John Duigenan, General Manager for Global Financial Services Industry, underscored the importance of hybrid cloud strategies, noting how they enable banks to use generative AI while maintaining data privacy and security.

As financial institutions seek to enhance their competitiveness, adopting a standardized technology architecture could lead to faster development, lower costs, and improved integration.

"A robust hybrid cloud strategy allows institutions to fully leverage the power of generative AI for informed insights into the behaviors of customers and their anticipated needs while ensuring the highest levels of privacy, security and resilience," said Duigenan.

The study concludes with recommendations for banks to invest in ecosystem platforms, scale emerging technologies across all business lines, and refocus resources to better meet the diverse needs of SMEs.

This approach promises to unlock new growth opportunities for both financial institutions and the SMEs they serve.

For more insights, visit IBM's full report.