Martin Tornes: A Guide to Winning SME Banking Strategies

MARTIN TORNES: So, in small and medium enterprise banking, there has traditionally been a very complex segment for the incumbent banks to serve, given the very broad and diverse nature of the needs within that segment.

Now, during the financial crisis, a lot of the SMEs went bankrupt. And that failure, of course, put a lot of pressure on the returns in this segment, which has really caused a lot of banks globally to retrench from this as a segment.

Now, what we're seeing now, with more competition from fintech and alternative lending and the whole digital space, that really further puts pressure on the returns in this segment.

Within the context of all of these pressures, what we're seeing now as Bain and Company are really some of the incumbent banks starting to think a lot differently about the strategies for SME, and devising a set of clear charges that deliver superior returns in this segment.

First thing is, really gaining an understanding of what does SME really need to be for my business? What do I want this to be? And what are the guardrails on risk and return that we as a bank want to have around this segment?

Then importantly, a set of choices around how do I want to segment my customer base? And prioritize with different segments within that? We traditionally have seen some banks trying to offer a broad and standardized set of offerings across very diverse customer segments.

What we're increasingly seeing are more granular and smart models of actually subsegmenting this, and then prioritizing which segments to win with and which segments to potentially de-prioritize. And that really drives a lot of focus.

And as we start to see more and more data becoming abundant, and the ability to process that in a smart way, we see really much more advanced and granular segmentation models being applied from incumbent banks, as well as fintech challengers.

Now importantly, once you set the priorities here and prioritize the segments you want to play with, it's very imperative that you then flow that through to a set of choices around what products to offer and how to offer those products. And what distribution channels you need and which segments to serve through which distribution channels. That really gains a lot of focus and allows your front line and your credit and your product specialists to be much more focused. So that's really the key as we see it.

Read the Bain Brief: Divide and Conquer—A Guide to Winning SME Banking Strategies