High-spending SMEs – an opportunity uncovered
How banks can reach high spending SMEs to enrich their portfolios.
Emma Streatfield
Head of SME - Europe, Visa Business Solutions
Emma Streatfield
Head of SME - Europe, Visa Business Solutions
With small and medium-sized enterprises (SMEs) increasingly looking to drive efficiencies through digitising their payments, new opportunities are opening for banks to drive enhanced value for these businesses and access new revenue streams.
It’s imperative that banks appreciate the influence high spending SMEs have on transaction volumes and portfolio profitability.
But not all SMEs are created equal in terms of their payment needs and one size does not fit all when it comes to providing solutions. Often a handful of a bank’s SME portfolio can be classified as high spenders. The card spend generated by these companies can account for over 50% of a bank’s total SME card payment volumes – making high spending SMEs extremely valuable to any commercial bank.
While the pandemic has been challenging for many, there is a cohort of high-spending SMEs who haven't been impacted to the same extent. These businesses have recovered quicker than most and many are succeeding in these difficult times, making them both stable and typically fast-growing. There is opportunity for commercial banks to build strategies to effectively support these valuable businesses.
What the research tells us
A recent survey we commissioned which polled senior decision-makers working for SMEs across six European countries¹, defined the spend levels which helped us categorise high spending SMEs. Research concluded that spend levels for this type of customer, in the European region, where they are also heavy credit or debit card users, to be around £15,000/€15,000 or more per year on card. Given the proportion of spend these customers command, it’s imperative that banks appreciate the influence these businesses have on transaction volumes and portfolio profitability. The report’s analysis of high-spending SMEs highlights why these businesses are so important to banks. High-spending UK SMEs (the top 10%) generally spend 14 times more on average than all other SMEs and make on average 4.4 times more transactions per annum than all other SMEs. Moreover, their average transaction value is 3.2 times higher than all other SMEs.²
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Business cards are used by most SMEs today for more traditional spend categories such as buying an airline ticket, paying for a hotel bill or visiting a restaurant, for example. But high-spending SMEs don’t just spend more in payment volume terms, they also use cards for a broader range of spending categories or types of purchases. A dress boutique, for instance, may use it to procure inventory, or a manufacturer to buy production-related components. This is important because it points towards how businesses could improve efficiency, accelerate digitisation and improve fiscal fitness for the future through using business cards more broadly.
Our research also shows there are still misconceptions around the use of cards, specifically limited appreciation of how cards can help high spending SMEs better manage their whole business, beyond just being a convenient payment method. We’ve outlined three strategies banks can use to help shift perceptions of cards and ultimately better serve this valuable segment.
Improve efficiency, accelerate digitisation and improve fiscal fitness for the future through using business cards.
Perfect the basics first
Doing the basics well is paramount; offering a payment method that is secure, reliable and widely accepted, is the first step to meeting the needs of high spenders. Banks need to promote the ease and flexibility of using commercial cards, while highlighting the security benefits a card-led approach can provide through enhanced protection for online purchases, for example.
The top four drivers of card usage referenced in our research were ease and convenience referenced by 87% of respondents; control (82%); security (68%) and credit and liquidity (63%). These reasons are largely consistent by spend group but credit and liquidity is significantly more pronounced a reason for higher spenders. This highlights where the focus should be, when banks are talking to their high spending SMEs about the benefits of using cards.
Ease and convenience
Security
Control
Credit and liquidity
Ease and convenience
Security
Control
Credit and liquidity
Add value beyond the payment itself
Our research also shows that the top four needs high spenders identified as important for their businesses to be successful are:
- Getting paid by customers/clients on time (identified by 49% among their top ten needs)
- Oversight of business financial incomings and outgoings (49%)
- Having quick and easy access to flexible credit (47%)
- Accurately forecasting business performance and future cashflow (46%).
High spending SMEs are looking for solutions that meet their real needs. Banks with card features which offer better visibility into and management of data and working capital are more likely to resonate than those simply offering traditional card add-ons, such as travel and accident insurance or warranty protections.
When used effectively, commercial cards can help high spending SMEs do more than just improve spend management. In fact, they can be a valuable tool business owners can use to manage their whole business better. Often, gaining full visibility into transaction data or using dynamic spend limits can make valuable contributions to helping business owners view, control and ultimately manage spend, enabling them to make informed decisions about running their business. And because these businesses buy more on cards, they need deeper insight into their transactions.
Similarly, spend limits and controls which are easily enabled for physical and virtual cards can help enable employee spending, while in turn helping control business costs and manage risks. Spend reporting gives businesses the ‘big picture’ view and allows them to focus on key areas and even negotiate better terms with suppliers, where appropriate.
Because these businesses buy more on cards, they need deeper insight into their transactions.
Become a proactive partner
There is always an opportunity for banks to forge stronger relationships with SMEs, but it is imperative with their highest spending SME customers. Such is the complexity of the spending behaviour, this group value even more getting greater insights into its specific breakdown. From the banks’ perspective, building this insight is likely to uncover new awareness that will help with the subsequent development of needs-based solutions, drive up loyalty and build a stronger more value-based relationship over time. In doing so, they have much to gain. By positioning themselves as a partner, always seeking to understand the needs of their high spending SME customers, banks can build positive relationships and address these needs with products which add value to these businesses and ultimately help them not only address future market disruptors, but also thrive.
SMEs are seeking advice to adapt to many forces brought on during this pandemic. Thus, there is an opportunity for banks to provide support and tools to help their customers evolve their businesses to meet changing customer demands and marketplace dynamics.
For example, working with acquirers, banks can help high-spending SMEs with card acceptance, hence automating cash collection while providing access to readily available capital in their current accounts. This gives SMEs access to more working capital resources to support growth and everyday spend. As card acceptance is often seen as a hindrance, working together with businesses and acquirers to overcome barriers to acceptance, banks can help high spending SMEs manage cashflow more effectively.
By positioning themselves as a partner, always seeking to understand the needs of their high spending SME customers, banks can build positive relationships.
Now is the time to nurture relationships with this key segment. Cards already feature prominently within high-spending SMEs’ payment repertoires
Positive prospects
SMEs are undeniably a crucial segment in any bank’s customer set. When a part of this market segment is categorized by businesses who drive roughly 50% plus of a bank’s total SME portfolio spend, it’s clear to see why they should not be ignored. Rather, this customer segment must be actively embraced. Banks can strengthen relationships with these high spending businesses and ensure growth for their own portfolios and for their business customers too.
The pandemic has shone a light on the fact that SMEs have felt their bonds strengthen with the suppliers and stakeholders who have helped them weather the storm¹. Now is the time to nurture relationships with this key segment. Cards already feature prominently within high-spending SMEs’ payment repertoires. This gives banks a unique opportunity to step in and use this touch point to develop lasting partnerships which will ultimately help these businesses not only navigate a post pandemic landscape but also thrive for the future.
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- Driving high-spending SME card usage in a post-COVID-19 world, Visa and Incite
- Visa heavy spenders data exploration 12 Feb 2017
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