When the UK Chancellor, George Osborne, recently commissioned a study on how well Britain’s SMEs are served by the nation’s banks, it wasn’t a domestic lender that earned top marks – it was Sweden’s Handelsbanken.
The latest Extended Performance Satisfaction Index, an independent survey of customer satisfaction with UK banks, also placed Handelsbanken in the top spot for corporate customer satisfaction and loyalty for the seventh year running.
Although well established in its home country since 1871, Handelsbanken has only been operating in the UK since 1982 – fairly new in banking terms and part of a growing number of challenger banks across the world.
“We are able to achieve a different kind of service to that of other banks because we have a decentralised business model,” explains Richard Winder, a Handelsbanken spokesman. “Our structure allows local banking teams to make all the decisions that matter to customers in terms of lending, bespoke product modelling, pricing and service. They are best placed to identify what customers need, and they have the power to make sure they get it.”
Other lenders aren’t so flexible and responsive. Business Banking Insight, the study commissioned by the chancellor, found that mid-sized companies gave banks an average account satisfaction score of 65% and didn’t give a five-star rating for value to any lender. Banks clearly have some work to do on improving their relationships with mid-sized clients.
Disruptors in the sector are well aware of this and are beginning to capitalise on the opportunities it presents. Peer-to-peer lending web services, for example, are offering mid-sized business the chance to access finance through multiple individual investors. Spanish start-ups Arboribus and Comunitae raised more than €6m and €27m respectively in this way.
Blockchain technology could pose another potential challenge to traditional lender-borrower relationships between banks and mid-market businesses. “Applications of this technology aim to modernise the consumer lending market by allowing investors and borrowers to meet directly, removing banks and intermediary platforms from the scene,” says Antonio García-Lozano, Consulting Leader at Grant Thornton Spain.
A case in point is US start-up LoanCoin – a decentralised crowdlending network that runs on blockchain technology, providing loans in almost any currency with very low operational expenditure and higher rewards for investors.
Competition is clearly growing but if traditional banks succeed in turning their relationships with mid-market customers around, the opportunity presented by this sector is great. “The mid-market is where you find the fastest and strongest growth,” says Thomas Stewart, Executive Director of the American National Center for the Middle Market, which is sponsored by Grant Thornton’s US member firm. “These companies occupy the sweet spot between resilience and agility,” Stewart adds.
A study by the Bank of London and the Middle East (BLME) found that 70% of the businesses surveyed applied for financing from a bank over the past four years, compared to 47% in 2014. “We think there is a good opportunity for banks that focus on mid-market companies because it's not an area that is well served by the larger banks,” says Jervis Rhodes, Head of Corporate Banking at BLME.
However, lenders who think they can do ‘business as usual’ with the mid-market should think again. Handelsbanken’s popularity is a sign of a new competitive threat on the horizon. The BLME research found that of all the applications made by businesses for some kind of finance over the past four years, one in five were directed to a challenger bank – a smaller, start-up bank that aims to take market share from larger incumbents.
“Challenger banks more naturally serve mid-market companies because they themselves are within that area of the banking industry, so they have a mutual affinity,” says Rhodes.
Ask any mid-sized business what they value most from their lender and they’ll point to the ability to understand and respond to their needs, and to be treated as equals.
How far a bank is willing to go to help you is a good way of identifying just how valued you are as a client. When Faith in Nature, a UK manufacturer of natural hair and skin care products, started dealing with a large American firm, the transatlantic payment process caused a few problems. “Their first payment to us was by cheque, and in dollars,” explains Head of Finance Peter Broude. “We needed to get the money in quickly but it was taking a long time.”
Luckily, Faith in Nature’s bank was able to help Broude and his team understand what the delay was and to implement a process to manage similar situations should they arise again. “We talked to them and came up with various options so we can be one step ahead next time,” he says.
For any relationship to succeed, it needs work from both sides. “Companies and their lenders should aim to not have any surprises,” says Mike Conroy, the British Banking Association’s Director of Corporate and Commercial Banking. “It’s important to have discussions with banks to outline plans for the future and to let them know if there are changing circumstances or challenges.”
Meanwhile, Handelsbanken’s Winder says companies should always speak up if they aren’t getting what they need. “Businesses should feel empowered to scrutinise the service they get from their bank and, if they're not satisfied, to ask for more and better.”