Stronger customer relations are key to unleashing SME banking boom

SME banking could provide lenders with a powerful engine to drive revenue growth and protect their businesses from encroaching competitors. However, to unleash this potential, banks must significantly improve the services they offer small businesses.

The banking industry has enjoyed good revenue and ROE growth during the past decade but it is viewed poorly by many investors, says Alexander Verhagen, partner at McKinsey & Company. Supressing investor sentiment are banks’ modest revenue growth expectations, below gains in GDP, and their vulnerability to disintermediation.

“There’s a danger that banks could become a sort of utility with a balance sheet that supports underwriting but with customer relationships that are owned by others. A utility attracts a much lower valuation than an organisation that holds the primary relationship with customers,” says Verhagen.