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Are small firms retail or commercial propositions?

Speaking of corporates being from Venus and banks from Mars, one of the biggest dilemmas a bank seems to undergo is where to put and how to define small to medium enterprises (SMEs).

I’ve seen several banks alternate between treating SMEs as part of their retail business and then ping-ponging them into the commercial banking group.  A few years later, they bounce them back into retail again.  Then they change the categorisations such that an SME below $1 million is retail, then it’s below $10 million, then it’s back to $5 million.

The real difficulty is that SMEs are all treated as one large grouping of companies, and yet they’re all different and they all have different needs.

Some are small one-man band and family firms, that often are fairly self-supporting and manage themselves through friends and family finance.

Then there’s more entrepreneurial start ups that are looking for venture capital and growth.  For these, they don’t tend to deal with banks but go direct to the investment markets.

There’s then the real group that banks own, which are the tiny to small to reasonable sized firms that grind away a decent turnover and use the bank’s lending and credit facilities to cover the harder times.

The banks make a decent crust from this community, but the issue lies with whether all of these firms are retail or commercial bank propositions and at what point do they turn from retail to commercial.

Too often, it’s easy to think of the smaller firms as just needing a retail relationship manager when what they really need is a business development advisor.

Equally, the opposite can be true for a less ambitious firm.

As can be seen, the whole thing is generally confusing and difficult and, as a result, banks are generally difficult and confused in their organisation and structuring for SME focused operations.

Something that hasn’t changed much in my time but the banks keep trying to sort it.

So what is the solution?

The solution is to tailor each bank service to the business as it fits that business.  Some will need to be in commercial focus, even though their turnover is minimal; others will need to be in retail operations, even though their revenues are mainstream.

The former may be a great new Web 2.0 startup whilst the latter may be a family run and supported firm.

But there is no homogeneity.  Just individual companies that need to be treated like individuals.



About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • That’s odd.. you just stumbled on the same phenomenon me and some others identified as one of the primary underlying reasons for investment and innovation stagnation. Let me introduce you to one of the many built-in psychological shortcuts we humans posses:
    If you extrapolate this to decision making processes, beyond the illusionary proficiency of quantitative analysis by virtue of using weighing numbers which have no real valuation framework, would you think this to be a valid approach?

  • Different rules and regs apply depending on the size of the organisation. e.g. the PSRs define Micro-enterprise as ‘an enterprise whose annual turnover and/or balance sheet total does not exceed €2 million (or sterling equivalent) and employs fewer than 10 people.’