Empowering SMEs:
Supercharging business card offerings in the UK
January, 2024
Author: Nicky Cockerill, Business Consulting
An Underserved Market: Addressing the Unmet Needs of SMEs
Small and medium-sized enterprises (SMEs) play a pivotal role in the UK economy, contributing significantly to its overall growth and stability. According to the Federation of Small Businesses latest report, SMEs accounted for 99.25% of the total business population in the UK at the start of 2022. Moreover, with their responsibility for 61% of the total employment and 51% of the turnover in the UK private sector, it is undeniable that SMEs are a critical driving force in the UK economy (1).
However, despite their importance, SMEs are frequently categorised as an underserved market segment. Situated between the large company and consumer sectors, financial institutions struggle to align with the unique demands and expectations of small businesses; they often provide products and services for SMEs derived from those originally designed for consumers or large enterprises (2). Notably, a survey conducted by The Telegraph, involving over 1,000 SMEs, revealed that more than a third of respondents (35%) expressed their willingness to switch banks if they could secure a superior overall service (3).
Additionally, SMEs, like most businesses, are having to navigate universal challenges such as economic uncertainties, volatile market conditions, and the impact of global events like Brexit, the invasion of Ukraine, the cost-of-living crisis, and the COVID-19 pandemic. These challenges are particularly pronounced for SMEs, given their typically limited resources and capital reserves, amplifying the financial repercussions of external factors. According to the Office for National Statistics (ONS), around 45% of SMEs saw a significant decline in turnover post-COVID (4). Consequently, SMEs are needing to be even more cost-conscious and business-savvy than ever before.
In light of these challenges confronting the SME market, an opportunity emerges for card issuers to elevate their value propositions and effectively cater to SMEs with the potential to increase conversion rates and revenue growth. Card issuers need to assess and align their offerings with the needs and priorities of these businesses, offering card products that directly address SMEs’ current needs and alleviate their pain points. This article delves into the top five strategies that card issuers can employ to achieve this alignment.
Top Five Optimal Card Strategies for Card Issuers:
1. Personalise the offering
Research conducted by Mastercard underscores the critical role of personalisation in meeting the expectations and the needs of small businesses. EY's study reveals that SME owners, perceiving themselves as highly individual, often find generic offerings lacking (6). Dissatisfaction and disloyalty stem from challenges such as standardised product offerings and the absence of tailored solutions in SME-bank relationships. Issuers can personalise their value proposition to increase customer satisfaction by:
Offering a spectrum of rewards targeting specific merchant categories
Establishing partnerships with trusted online brands, such as Amazon
Providing choices between rewards and cashback
Enabling payment of annual card fees using points
For example, Capital on Tap's 1% cashback and versatile reward redemption options, including popular gift cards, exemplify the appeal of such personalised rewards (8). This level of personalisation can support issuers in boosting customer engagement and cultivating SME loyalty.
2. Streamline expense tracking
Small and medium businesses often waste 11 hours per month on expense management, incurring an estimated loss of £291 per month for employees (9). Issuers can increase SME business card adoption by offering sophisticated and user-friendly expense management and tracking tools. According to Sage’s research, SMEs have increasingly embraced digitisation, with 8 in 10 requiring digital tools for effective operations. Offering streamlined mobile apps and easy-to-use tracking platforms, can help SMEs save time and resources, for an attractive business card proposition. For example, the Revolut app showcases this approach effectively by providing businesses with the capability to receive real-time spending notifications, request expense approvals, and seamlessly sync card spending data from the app to their business's accounting software (11). Further, seamless integration with popular accounting software like Xero, QuickBooks, and Sage ensures efficiency for the businesses.
3. Protect SMEs from fraud
Prioritising and promoting security and fraud protection features is crucial. The rise in fraud cases, with a staggering 151% increase from £444.7 million to £1.12 billion between 2021 and 2022, underscores the urgent need for businesses, especially SMEs who are often seen as “soft” targets, to protect themselves (12). A survey conducted for the Take Five to Stop Fraud campaign by UK Finance revealed that 62% of SMEs are more aware of fraud since the start of the pandemic and putting robust protection measures in place may now be considered a top priority for many small businesses (13).
To avoid financial losses, SMEs need to mitigate risks of fraud and unauthorised spending by possessing the capability to modify card features swiftly and securely. Issuers can help address this need by implementing features such as the activation/deactivation of payments and cash withdrawal, to allow a business to respond promptly to security concerns or changing business needs. Additionally, location awareness controls provide an added layer of security by restricting card usage to specified areas. To resonate with small businesses, issuers can place their insurance and zero fraud liability offerings at the centre of their marketing efforts, highlighting the enhanced security that cards provide in comparison to other payment methods.
4. Accelerate the onboarding process
Many small businesses still use personal bank accounts due to familiarity, despite inefficiencies. (14) Research by Pay.UK reveals that the perceived time and effort required can deter SMEs from switching (15). Streamlining the onboarding process, therefore, can encourage provider-switching and aid in the acquisition of new customers, as business owners seek unobtrusive services to access credit quickly. Card issuers can digitise onboarding through implementing automated application processing, user-friendly interfaces, digital document submission, and offering real-time decision-making. By offering quick decisions, and providing a seamless experience, card issuers can position themselves as forward-thinking partners to ultimately increase customer conversion rates.
5. Maximise SME engagement
Taking a proactive approach to educating SMEs through integrated marketing strategies can serve as a key differentiator for issuers. Many small businesses tend to default to personal bank accounts due to familiarity, often overlooking more advantageous alternatives (16). To address this, issuers can initiate and engage in consultative conversations with prospective customers, providing examples of the potential gains achievable through effective business card usage. SMEs are actively seeking a demonstrable return on investment, underscoring the importance of illustrating the potential cashback and rewards they can accumulate. This educational effort will not only deepen a small business’s understanding of the tangible benefits available, but also maximise their engagement with card programmes, ultimately benefiting the card issuer and increasing their revenue.
By implementing these recommendations, card issuers can gain a competitive edge in addressing the diverse needs of small businesses in the UK. These initiatives have the potential to foster lasting partnerships and loyalty between issuers and SMEs.
Sources
1 https://www.fsb.org.uk/uk-small-business-statistics.html
3 https://www.telegraph.co.uk/business/challenges/sme-key-challenges-2019/
6 https://www.ey-seren.com/insights/smes-opportunity-in-overlooked-economic-sector/
7 https://ojs.mruni.eu/ojs/intellectual-economics/article/view/705
8 https://www.capitalontap.com/en/
10 1 https://www.fsb.org.uk/uk-small-business-statistics.html
3 https://www.telegraph.co.uk/business/challenges/sme-key-challenges-2019/
6 https://www.ey-seren.com/insights/smes-opportunity-in-overlooked-economic-sector/
7 https://ojs.mruni.eu/ojs/intellectual-economics/article/view/705
8 https://www.capitalontap.com/en/
10 Downloadable report: https://www.sage.com/investors/-/media/files/investors/documents/pdf/public%20affairs/sage-digital-britain-report-june-2022.pdf
11 https://www.revolut.com/business/expenses/