The past two years has shown that small businesses are open to innovative ideas – they just need banks to provide them.

With consumers showing more support than ever for local retailers to help them rebuild, there is a unique opportunity to support SMBs with services and marketplaces that enable them to grow.

The challenge is the accelerating pace of market change, amid intense competition from digital-first contenders vying for the attention of connected customers and businesses.

Global economic growth is predicted to exceed $3 trillion this year, so digital competitors are engaged in a virtual arms race to maximise their share of potential gains from growing user numbers and rising levels of spending.

This is great news for consumers, who will be spoilt with exceptional user experiences and rewarding service improvements from app providers that obsess over honing their UI to keep customers active and loyal.

The potential rewards are significant. For example, Swedish fintech Klarna reported a 70% increase in active consumers during last year to 147 million, driven by demand for its Buy Now Pay Later product and a growing range of services within its expanding app-based ecosystem.

A key source of growth, in addition to financial innovation, is in-app marketing, through which individual brands are promoted to a community of consumers. Increases in customer spending are unlocked through more payment options, including physical cards, a ‘pay now’ option, and a growing rewards programme.

Like rivals, such as Afterpay, the importance of the marketplace is clear as soon as you visit their websites, with retailers and merchant offers dominating digital real estate.

Changing perceptions

Against this background, the gap between what consumers and businesses may perceive a bank to be and what traditional banks can offer will continue to widen.

Banks must avoid being typecast to the restrictive role of providing savings or loans by ensuring they are seen as a core part of the digital revolution. The disruptive efforts of fintechs are raising the competitive bar, so banks need to respond.

A key area of future competitive pressure will be the SME sector, which accounts for 90% of businesses worldwide but typically remains an underserved sector of the economy.

Banks can still win in this space – they have all the assets to do so, but they will have to move fast.

The small business market is potentially hugely lucrative for banks. SMBs are actively looking for innovative products and services available in the market – and there can be much more to a business bank relationship.

The answer lies in banks playing to their strengths while delivering the experiences consumers and SMBs increasingly expect.

Banks have access to unrivalled levels of business and consumer data that can inform and power innovative and valued solutions, so SMBs can sell more, know more and grow faster.

Importantly, banks remain the only ones in the payment chain who can connect directly with both merchants and consumers.

Driving data insights

Banks can use their unique data insights to enable SMBs to ‘do business better’ through products and platforms that provide a much deeper understanding of customers and their spending habits. This includes the potential for new digital marketplaces that connect customers to relevant products from local businesses they want to support, while enabling small merchants to reward loyalty and attract new customers.

Marketplaces can also be used to support SMBs, providing them with a hub from which they can access a curated list of relevant, quality third-party services that improve business performance by seamlessly integrating with their systems.

The aim is to delight SMBs with a ‘blast of innovation’, delivering digital solutions that connect small businesses more closely with their customers and give them insights that power growth.

Pollinate research shows that banks are ideally placed to support SMBs. Consumer trust in banks is more than twice as high as technology companies when it comes to sharing transactional data; consumers would also trust their bank to operate a loyalty programme that allowed them to provide tailored and personalised offers for consumers.

This customer-first, data focused approach will help banks to compete against the disruptive influence of fintechs, while also providing valuable support to SMBs as they rebuild following years of economic disruption.

The power of partnerships

However, moving at speed has always been a challenge for large financial institutions, given the difficulties of updating legacy systems while maintaining service levels and security. Making changes in a timely and secure way is not an easy task, which means working with specialist partners is important to drive banking innovation.

Working in parallel with banks, smart partnerships can offer the expertise and speed of execution that is required to respond to emerging opportunities and changing customer needs. This allows banks to leverage their strengths in compliance, data security and customer relationships, while agile partners provide the speed of innovation needed to respond quickly to customer and business requirements.

In this way, the power of partnerships can take banks beyond the back-end to create new ecosystems where customers and businesses connect.

Innovative partners can be the catalyst that secures growth for SME customers and generates long-term loyalty to banks for decades to come.

Fion Roach Canning, Co-Founder & CEO