Lenders in favour as primary bank

RESEARCH by business banking research specialists East & Partners has shown that, since the global financial crisis, SMEs are nominating their lender as their primary bank, as opposed to their transaction bank or ‘home’ bank.

Before the GFC, the majority of SMEs regarded their transaction bank as their primary banking provider, but nearly three quarters of SMEs are now nominating their lender as representing their primary banking relationship.

The research suggests this change has had a major impact on both the way banks look to use this relationship as a cross-sell platform, and the way SMEs look to engage with their bank.

Alongside this shift in perception of a ‘home’ bank, SMEs’ satisfaction with the value for money they are receiving from their primary banking provider has deteriorated to new lows.

“Many SMEs now have reduced appetite for debt-funded growth in their businesses, having deleveraged during the GFC and remain very cautious about near-term futures for their businesses,” East & Partners’ principal analyst Paul Dowling said.

“This has created a new paradigm for the industry, one which will take time for both providers and SME customers to work through.”

However, SMEs still remain bonded to their primary banking provider, with levels of intended churn up only marginally since the GFC, due in part to bank credit conditions and in part to a perceived lack of choice in the market.

In April 2008, 34.5 per cent of SMEs said they would ‘definitely’, or it was ‘highly likely’, that they would be changing banks within six months, whereas today, less than 18 per cent of SMEs are looking to move.

“Actual conversion rates in outlook SME switching have also plummeted with a reduction from a pre-GFC average of 50 percent of customers changing all or part of their relationships, to now less than 20 per cent,” Mr Dowling said.