Australian SMEs Drive Business Banking Rethink

Australian small business owners’ bank relationship are changing, with important implications for the country’s Big Four, banks according to research conducted by East & Partners (E&P).

The report finds that close to half of all Australia’s small to medium-sized enterprises (SMEs) primarily engage with their business bank for transaction banking needs across cash management, cross border Payments or payment processing products.

Similar research in 2011 found that up to 75% of all small businesses primarily considered their relationship with the bank to be lending based amid tighter credit conditions and shaky business confidence.

The findings are included as part of E&P’s SME transaction banking program, presenting analytics based on interviews with 1,491 SMEs with turnover of A$1m (£0.5m/US$0.77m) to A$20m per year.

Although the core transaction banking relationship is recognised as a key foundation for cross sell into associated treasury, business FX and risk management products, up to one in four Australian SMEs intend to switch their primary transaction bank in the next six months.

When surveyed by E&P in 2010, only 10.4% of SMEs planned to change their primary business bank.

“Now entering the twentieth round, our research confirms that between 8% to 10% of small businesses with intent to switch will actually act upon it and respond to a competitor pitch, resulting in an annualised churn rate of 15%” said E&P’s head of markets analysis, Martin Smith.

Mind share continues to be a proven leading indicator of market share growth, reports E&P. Small business owners predominantly switch to a competitor that is ‘front of mind’ once they have decided to churn, however before they reach that point the biggest driver of ‘churn intent’ is a distinct lack of customer support.

Although SMEs determine customer support to be an integral element of their relationship with their bank, an overall satisfaction rating of 2.17 is considerably lower than associated service factors (on a scale where 1 = satisfied and 5 = dissatisfied).

“Delivering customer support that exceeds expectations is an inherently challenging prospect for commercial banks, but the research clearly shows that dissatisfaction with customer support firstly leads to lower wallet share, then greater intent to churn” said Smith.

“SMEs are also becoming more comfortable actually undertaking the process of switching providers. We currently see three separate value propositions for the SME wallet, offered by the Big Four, non-Big Four and new entrants.

“The Big Four may currently represent over three quarters of all SME lending relationships, but the shift in precedence to transaction banking product demand favours non-bank alternatives offering streamlined multi-channel products, for example solutions directed at cash flow based lending as opposed to traditional secured lending products.”


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