Stick or twist?

SMEs across Europe have woken up to the digital reality of life, post-COVID.

While many complained before about the inadequacy of (often analogue) business banking services, only the most switched-on sought out alternative providers to plug the gaps.

Now that they’ve all been catapulted into an online-driven, multi-payment platform marketplace, many more are having to decide whether to stick or twist, asking themselves if they should leave the legacy banks they know for a challenger they don’t, or buy in a patchwork of discrete services from direct-to-market fintechs that can help them manage an unpredictable business environment better?

In Portugal, the country’s third largest bank, Novo Banco, is making that choice much easier for them. Already the country’s most popular bank for SMEs, it’s partnered with AI-powered software solutions provider Strands to launch a Portuguese banking first: an online interface called NBnetwork+ with a host of embedded business financial management tools (BFMs). NBnetwork+ is the default interface that business customers now see when they log onto their internet banking, and it currently comprises four key solutions: multi-bank account aggregation, giving a 360-degree view of their financial status; payment initiation from any of those aggregated accounts, regardless of the custody bank (by virtue of the SIBS open banking platform, used by 24 Portuguese banks); categorisation of revenue and expenses to give an immediate snapshot of business health; and a financial calendar that can be used for both retrospective business analysis and to predict future performance and cashflow around key events, such as paying their VAT or salaries.

Meanwhile, procedures that previously required a call or a visit to a branch, such as applying for short-term credit, can be executed through the portal.

It’s turned Novo Banco, in effect, into a one-stop shop for businesses of all sizes to do their everyday banking, analyse their financial health and performance, and help inform their future strategy. The online platform is supported by existing business relationship managers who now, thanks to more data and its automated collection and analysis, have the

Stick twist?or

autonomy and headroom to give better advice and faster decisions around, for instance, when dealing with more complex credit applications.

The impact, particularly for small enterprises, has been profound, says João Dias, chief digital officer at Novo Banco, who has led the bank’s digital transformation since 2018.

“The feedback we are getting is that using these tools is helping them change their own processes; the way they do their financial planning or day-to-day controlling. It’s helping them become more efficient by using digital channels to do things,” says Dias.

“From the beginning, we wanted to be able to provide interesting solutions that would drive customers to the interface. And we see further opportunity to do that, in ways which are relevant for smaller companies that don’t have the budget, capacity or resources to do certain things for themselves.”

A study by the European Central Bank in 2019 identified big gaps in knowledge and awareness among Portuguese business owners and managers, when it came to applying digital solutions to processes and channels. The number of companies selling across e-commerce platforms in Portugal is, for instance, way below the European average. A report, the same year, from analysts McKinsey, concluded that coaxing customers towards digital channels offered enormous potential for banks in Portugal. A platform service that educates entrepreneurs on how to use tools to monitor and predict their business’ financial health, will then, in theory, lead to a longer and more profitable relationship between them and the financial provider.

Many business banking customers have ample excuses to use alternative providers. Portugal’s Novo Banco wasn’t going to give them one, as its CDO João Dias and Brian Stewart of AI solutions provider Strands explain

The Novo Banco business banking team had, meanwhile, determined that there was a clear need to create a digital ecosystem where the bank could provide personalised and holistic support for its SME customers into the future – a dramatic departure from the age-old transactional relationship banking model. But that required a fundamental rethink of the bank’s internal structures and methodologies. It’s led to agile workflows, the creation of multi-disciplinary teams, and governance at the bank being more closely involved in transformation on the ground – all, recently, against a challenging backdrop of remote working. and their money in/money out history, and then, the real holy grail, in terms of profitability for banks, transform that into credit opportunities, which is a much more profitable line of business than just everyday banking.”

Stewart sees more banks forging partnerships with fintechs like Strands to better serve the increasing digital demands of their customers, both business and retail, over the next five years.

“Everyone’s clear that the demographic is changing and Novo Banco has demonstrated that banks really need to partner with fintechs at the moment, because theirs are the most innovative solutions that are coming to the market.”

Dias sees increasing customer engagement being pivotal as Novo Banco further remodels itself over the next decade.

“With the rise of digital, we see the opportunity to serve customers much more broadly, not only around open banking ecosystems and their financial needs, but broadening out support well beyond pure financial services.

With the rise of digital, we see the opportunity to serve customers much more broadly… well beyond pure financial services

João Dias, Novo Banco

In conducting its own, unstructured research among business customers, the bank noticed that the conversation started with requests like ‘can you help me do my treasury, my daily banking, my payments, my short-term financing?’ and so on.

“But when you step back a little bit, and you talk with a CFO or financial manager more broadly about their business needs, you start hearing things like ‘we spend so much time reconciling accounting information with banking information, can it be made easy?’,” says Dias. “Solutions like Strands Business Financial Management (BFM) are really at the core of that, making a lot of the admin automated and easy for small/medium-sized companies.

“On top of that, a lot of them really struggle with analytics. It’s not like they have an analytics department to think about how their business is going to develop. The off-the-shelf insights we can give them, in the context of the sectors and the broader economy that they are part of, giving them benchmarks, etc, enables us to help them focus their businesses going forward.”

So, somewhat paradoxically, the use of AI and machine learning is actually enabling the bank to be more human by offering a much more personalised service to its SME customers.

“At the same time, we wanted to give relationship managers the ability to provide fantastic service much more efficiently, and be very fast,” adds Dias.

Instead of labouring over multiple data feeds to work out a business’ creditworthiness, an algorithm instantly determines a credit limit, allowing the advisor to work with the customer on a personalised proposal. Because the credit limit and pricing has already been internally approved, the RM can sign if off there and then.

Brian Stewart is a business development manager at Barcelona-based Strands, which also provides the personal financial management tools for the bank’s retail mobile banking customers. He believes that the paradigm shift to customer-led, personalised banking through digital platforms offers new opportunities for banks to monetise services in today’s margin-squeezed environment.

“What’s really important, from the bank’s perspective, is that, if it’s interacting more with its SMEs, it gets to know both them and their customers better. There’s a lot more visibility. And, then, knowing exactly what customers an SME is interacting with, creates so many opportunities for upselling.”

Dias, who joined Novo Banco in 2018 after spending 17 years at McKinsey, describes those credit opportunities as the ‘holy grail’ and also makes the point that having increased visibility helps the bank with its anti-money laundering (AML) responsibilities.

“Knowing our customers, then being able to demonstrate that we know them, is almost as important as the actual knowledge, particularly because we’re then able to reliably talk about where and how transactions are done, to explain the sources of funds, and so on.

“Having a much richer picture of our customers’ transaction network is something that is very helpful, particularly when we talk about high-risk customers, where we need to demonstrate that we know the transaction history well.

“When it comes to cross-selling or upselling, we can take all of that knowledge of the day-to-day transactions and financial records of our customers

What’s really important from the bank’s perspective is it’s interacting more with SME clients

Brian Stewart, Strands

“Where do I see engagement going in the next five or 10 years? The vector I see being driven harder is how we can be relevant around broader ecosystems, and how we play different roles within those ecosystems. Of course, as a primary relationship bank, we’d love to be in a position to be the front brand to our customers and orchestrate the experience for them. But we can also be the silent partners in a ‘finance-is-everywhere’ kind of way.”

“Some of the big banks are very slow to move,” says Stewart. “Novo Banco went out to the market to look for an innovative solution from a fintech, and that was Strands. But if other banks don’t make a change, if they’re not offering a seamless user experience, they will become dinosaurs.”