Unlocking SME Banking Potential for Growth and Revenue

​US financial institutions tend to overlook small and medium-sized enterprises (SMEs) until they grow larger. This approach misses a valuable opportunity to support businesses during critical growth stages. Early-stage SMEs often need tailored financial services that can help them gain an industry footing and market share, positioning banks as key partners in their growth.

McKinsey's 2023 survey estimates that small-business banking generates roughly $150 billion in annual revenue for the US banking sector, accounting for around 17 percent of the industry’s revenue. This includes services like loans, deposits, cards, cash management, and merchant services. Targeted solutions for SMEs can expand this potential further. According to the survey, SMEs want their primary financial providers to offer additional tools, such as accounting and payroll, which many banks currently lack.

A related study shows that while SMEs prefer banks to provide these services, they spent over $530 billion in 2020 on third-party providers for accounting, bill payment, invoicing, and payment processing. Open banking can help banks integrate these services, offering SMEs more complete financial solutions and strengthening customer retention. This integration requires real-time connection between core banking platforms and supportive systems.

Expanding SME support services is an untapped revenue stream. By using open banking data, analytics, and artificial intelligence (AI), banks can better understand SME needs and provide relevant services. This strategy can improve SME trust, foster long-term relationships, and help banks maintain competitive advantages while addressing the market inroads made by newer financial players.

Rebecca Gaskin Gain

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