Australian banks missing growth opportunity with SMEs

Australian banks are reportedly not fully capitalising on the opportunities presented by small and medium enterprises (SMEs) in the business banking sector, as outlined in the Business Banking Customer Report 2024 by Publicis Sapient.

The report, which surveyed 2,000 financial decision-makers at Australian SMEs, reveals that only 40% of SME customers have a "somewhat positive" view of their current banking providers. A further 5% expressed negative sentiments, indicating a clear opportunity in the market for a bank to establish leadership in the SME sector.

Tales Sian Lopes, Head of Financial Services for Australia & New Zealand at Publicis Sapient, stated, "SMEs are key to Australia's growth and the engine of our economy. With mortgage margin erosion impacting banks' profitability, business customers are playing an increasingly important role in banks' growth strategies. Despite this, most Australian banks' proposition for SMEs is little more than a rebadged retail offering. There is a huge opportunity for banks to offer a compelling, data-driven business solution to meet SMEs needs, and build a market leadership position that will drive future growth and profitability."

The research highlights that a significant portion of SMEs prioritise reliability (47%), customer service (43%), and convenience (39%) when choosing a banking provider. Less emphasis is placed on technology and innovation, which were only noted by 29% of respondents as factors shaping their opinions.

As part of the regulatory landscape shift, the Government is targeting unfair and excessive card surcharges, providing new funding for the Australian Competition and Consumer Commission (ACCC) and prompting a Reserve Bank of Australia (RBA) review of merchant card payment costs. The report indicates that 78% of SMEs are attentive to their merchant fees, with 46% citing lower costs and fees as the primary reasons for switching merchant providers.

Despite a strong preference for digital payments, with 78% of SMEs favouring card and online payments, there remains significant resistance to eliminating cash services, with 49% opposed to such a measure. Even SMEs that lean towards digital banking acknowledge the lasting significance of physical branches, with 59% recognising their necessity for certain services. This reliance is further reflected by the 54% of SMEs who would consider changing banks if their local branch were closed, while 28% would remain but be dissatisfied with the change.

The report also underscores broader consumer behaviour, noting that 76% of Australians still carry cash mainly due to surcharge-related reasons. Lopes commented, "Changes of card surcharges could have unintended consequences which will impact consumers, SMEs and the banks themselves. It could potentially accelerate the move towards digital payments — reducing the volume of cash payments across the economy. This will reshape how banks evaluate the use of their branch networks, and could even lead to fees for cash services. Our research shows that 1 in 4 Australians value cash services so much they would be willing to pay additional fees of up to 5% to use cash."

Lopes further elaborated on the future of banking services for SMEs, "To succeed with SMEs, banks will need to navigate a complex set of preferences and behaviours, especially around cash and payments. We also see clear opportunities to differentiate on experience and technology."