Despite the rise of FinTech firms and challenger banks hoping to offer small businesses (SMBs) a better banking experience, large traditional financial institutions (FIs) continue to hold the dominant position in the SMB financial services (FinServ) space. However, that’s not for lack of interest among the small business community in switching providers.
In a new survey from IT solutions provider Unisys, researchers found that a significant portion of the 450 SMBs questioned are already looking to switch providers, many of which want to move to a FinTech or alternative player, rather than another industry leader. Yet, the report also shows the limitations of the U.K.’s efforts to promote bank switching and overall competition in the SMB FinServ market.
Awareness of Open Banking, a key regulation designed to boost FinTech competitiveness, remains low among small business owners. Professionals who do understand the regulations are significantly more likely to switch providers, Unisys said.
“These reforms will force banks to shift from being one-stop shops for financial services to open platforms, where customers can start to embrace a more modular approach to banking by giving verified third parties direct access to this data,” explained Unisys Financial Services’ EMEA Industry Director Simon Healy in a statement announcing the report. “In today’s digital and customer-driven world, in which those who share data call the shots, it’s adapt or die — and banks need to respond.”
Interestingly, while challenger banks and FinTech firms vow to provide small businesses with the technology they demand, banks remain the leaders in the SMB banking space, researchers said. That doesn’t mean traditional FIs don’t need to act quickly to compete, though.
“SMBs are tech-savvy, [often with] a higher uptake of online and mobile services than most consumers, and yet many experience technical difficulties regularly,” Healy noted. “They see the use of technology by banks as critical to retention, but also in the development of new and innovative propositions that can enable their business.”
Despite technical difficulties and rising competition, large banks have something the newcomers don’t. According to Unisys, trust is the main reason why a small business owner sticks with a provider, more so than innovation and digital services. Even fees and service standards emerged as top differentiators for when a small business chooses a provider — a finding that the report said suggested a lack of competition, forcing providers to improve service standards and lower fees.
Below, PYMNTS takes a look at some of the key data points from Unisys’ report on small business banking in the U.K., and how industry disruptions like FinTech and Open Banking are — and aren’t — changing the landscape.
One-in-six small businesses want to switch financial service providers in the next year, the report found. Their main motivation is to find a service provider that better fits their needs, including mobility and a fully functioning app.
Thirty-seven percent of business owners surveyed said they’d be comfortable having little-to-no human interaction when conducting banking.
Eighty-three percent of small businesses use mobile banking, and nearly all use online banking platforms. Despite the importance of technology, 39 percent said they regularly experience technological problems from their bank that prevents them from conducting business they need to perform.
Twenty-eight percent of SMBs have a strong understanding of Open Banking, despite 87 percent saying that they had at least heard of the regulation. Small businesses that have a good grasp on what Open Banking means for the financial services industry are 3.6 times more likely to switch their FinServ provider at some point in the future, researchers found.
Forty-nine percent of small firms looking to switch are considering a challenger bank, digital bank or non-bank financial services provider, more than they are considering an already established brand. This suggests that large FIs do, indeed, face at least some competitive threat from newcomers, despite their ability so far to maintain dominance.