The importance of SMEs to a country’s economy is an acknowledged fact. Having a thriving SME sector produces economic growth and innovation. It is a sector that governments actively seek to support as SMEs also employ a significant proportion of a country’s population.

Healthy SMEs mean healthy employment, which leads to a healthy consumer sector. The table below shows that in the UK 58.7% of the workforce are employed by SMEs. The table also shows that over 50% of UK turnover comes from businesses employing less than 250 people.

SMEs are a key sector for banks for these reasons together with the fact that they provide good levels of return on capital and the bad debt volatility is far less than the average for the corporate sector. Other strengths and weaknesses that the UK market faces, in particular, can be seen here:

The key challenge for the banks is how to balance the equation of service, cost and income. Many are following the route of value segmentation for their SME portfolios and are seeking to re-engineer their lending and fulfilment processes to ensure the customer receives a fast and error free service at a cost that is acceptable for the income yielded.

This is being achieved through the automation of the lending decisioning and fulfilment process to reduce or eliminate the need for the paper processes and manual underwriting traditionally found in the SME arena.

Given the substantial automation in the retail lending field, small business owners are rightly demanding the same internet speed decision making for their small business account that they receive on their personal account. After all, from the sole traders’ perspective a business loan for a van is not that different to a personal loan for a car.

Being able to anticipate lending requests and provide point of sale answers through mechanisms such as shadow limits, where lending limits are pre-calculated in the background enable fast decisions to be made to the delight of customers.

With the increased pressure to do more with less, banks cannot afford to have loan officers tied up underwriting small value but large volumes using traditional credit assessment processes. With the inherent lack of reliable financial accounts, the banks possess a much more powerful set of information – the transactional data that passes through their customers' accounts. Harnessing this information allows banks to create behavioural risk models and strategies to help in all areas of customer management.

Experian-Scorex has provided SME solutions to banks globally for many years and has an excellent reputation for deep sector knowledge and understanding of the risk, operational and regulatory challenges (such as Basel II) faced by the banks and providing solutions that help to drive down cost:income ratios.

Stephen Gildert - Business Consultant, Experian-Scorex

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