The increasing marginalisation of banks : Part One
The other day I was having a coffee at a local café. The business was using a Square terminal and so I started chatting with the owner about terminals and his experiences. (I love asking business owners about their merchant/payment solutions). This guy said something to me that is consistent with what I’ve started to see in our research interviews, but he was the first one to have such a definitive view ...
I asked him who he banks with and he said ANZ. I then asked him to humour me and tell me who is his ‘Main Financial Institution’. His answer? Square.
I suggested that he probably does his ‘pays’ through ANZ and maybe even has lending through ANZ. He pointed out that whilst that is true, he sees Square as the centrepiece of the operation – Square is how HE gets paid by customers. And Square provides him with Point Of Sale functionality and pretty pictures as part of his POS that he was so proud to show me. Sure, he ‘banks’ with ANZ, but in his mind ANZ is a bit-player in his financial affairs. He sees Square as the mothership, Square is the MFI.
This is a giant watch-out for the banking sector.
To put this in a historical context, for the past 29 years of our SME research, business owners have referred to their ‘main business bank’ and their ‘main financial institution’ as the same organisation … and further, it has invariably been the organisation at which the SME holds the transaction account. (Incidentally … it has NOT been where the SME has its lending). But this perspective on the bank as the MFI is eroding. This story of my local café dude is part of a bigger picture that has been emerging over recent years, but has surged in the past year or so and that is the ‘marginalisation’ of banks. SMEs are increasingly seeing banks in a narrow, minimalistic way and often have an ever-diminishing perspective on what the bank can do for the business.
It would be easy to presume that this is purely a micro-business phenomenon but that isn’t the case. Consider the following comment from a business owner with 100 employees. This business has hundreds of banking transactions every single day … via traditional merchant services, eComm, direct debit/credit etc … the accounts team and CEO are constantly watching the accounts via internet banking … the business has some funding in place … yet the business owner suggested that he really can’t comment on CBA, his bank, because he really has so little to do with the organisation! …
“I don’t have much to do with them. I just don’t need – and haven’t needed – to deal with the bank that much. Everything’s done online. (Q : But is there more that they could do for you?) I don’t know. I just don’t feel like I need them. We’ve got our accountants for advice, I don’t feel like I need the banks for financial advice or advice on cash flow. That’s not their role. Their role is to facilitate receipts and payments. And provide financing if and when needed – it’s as simple as that for me.” (Publishing/Media, 100 FTEs)
Ironically, this business owner feels this way because everything is working! His banking has become frictionless. But like so many, he then takes this for granted. Most concerningly, rather than thinking that this earns the bank the right to do more for him, he sees it the other way – everything is ‘working’ and there isn’t anything else that he wants the bank to do.
Smaller businesses – that have less sophisticated needs – are even MORE likely to think that there is very little else that their bank can do for them … especially if everything is ‘working’…
“Banking has just become so easy. In the old days when you had to cash in a cheque or whatever, you still needed a branch to go to … On a day-to-day basis I don’t really deal with my bank. (Q : So what more could they do for you?) It’s a good question because even paying an invoice online, I don’t know how much easier that could be made.” (Electric Vehicle charging software, 3 FTEs)
“I don’t use them much, like their tailored package services or anything like that. I just use their transaction account on the banking app so I don’t use much of their service to evaluate them.” (Wholesale butcher, Sole Trader)
Like the café dude, such business owners aren’t necessarily unhappy with their bank … but they just think banks have started to become less important in their businesses and their lives. It’s ‘working’ and so they don’t give it a lot of thought. But by the same token, they think that THEY are becoming less important to their BANKS. This is especially the case for SMEs that don’t borrow … and therefore don’t have a banker …
“Because we don’t have debt, we find that we’re obviously not really of interest. It would be great to actually get rewarded for not having debt, just for banking your cash with the bank – but you don’t get any of that, there’s nothing. You only get ‘points’ for debt.” (Recruitment, 22 FTEs)
“I guess we don’t demand a lot of them so they don’t annoy us. I mean I don’t think they really care about us but luckily for us Michelle manages it so it’s not a pain-point. And she’s happy with their internet banking side, she’s learnt to manage it … Over the years I’ve said that I’d like them to understand us and have products that suit us but we just don’t even ask those questions anymore … I guess they’re just trying to reduce their HR spend so it’s probably never going to happen – we’re never going to get someone that cares about us.” (Specialised Physio, 30 employees (some PT))
“Because I’ve been dealing with banks for a very long time, I have no expectations anymore. I just think that they are an old model and challengers are going to come and wipe them out. It’s just a matter of time … We’re with the private bank and we never get any acknowledgement. If I ring up about anything they don’t seem to know me anymore.” (Branding Consultancy, 11 FTEs)
This time next week I will shoot out a follow up eNewsletter, looking at what banks can do about this ‘marginalisation’.
Conclusion
Although the banks have been subjected to a host of ‘challenger brands’ chipping away at their services, the reality is that SMEs have still viewed their bank(s) as being their MFI. Until now. We are increasingly seeing SMEs view their bank in a minimalistic way, sourcing ‘banking’ services from other organisations who are increasingly cutting the banks’ lunch. Those SMEs that still obtain such services from their bank are increasingly viewing them as hygiene. It is noted that business owners tend to talk about this in a matter-of-fact way. A growing number are resigned to their perception that their bank doesn’t care about them and they are just a number. Oddly, many aren’t troubled by it, they simply see it as the way things have developed. But it should be of genuine concern to the banking sector as it is undermining and eroding the positioning and importance of banks to SMEs. More on this in a week’s time …
