Whether it’s retail banking or business banking, the emergence of challengers has shaken up the landscape. With so many new entrants vying for the attention of clients, offering faster, cheaper, and more accessible ways of banking, attaining, maintaining, and retaining the customer relationship is becoming more difficult for traditional financial institutions.

Despite the customer relationship being key, a recent report by Strands revealed that SMEs see banks only as utilities – that is to say they are viewed as a necessary means of moving their money around, and not much else. Surprisingly, 83% of the banks surveyed agreed with this statement, and four-fifths further stated that they are aware SMEs are likely to open an account with a challenger bank.

43% of SMEs are growing so frustrated with the service provided by traditional banks that they are willing to switch to a challenger who is able to provide a better service. And as challenger banks carve out their niche, the core services that incumbents had the monopoly on for decades are being quickly chipped away at.

Additionally, SMEs are growing disillusioned with the core transactional services they are being offered, with 40% of SMEs citing ‘lack of personalisation’ as a major reason to leave their current provider. Banks seem to be oblivious to this, with just 17% citing ‘personalisation’ as a reason SMEs leave. In turbulent economic times, SMEs are understandably looking to their banks for advice, but do not feel that they are receiving a service that is tailored to their needs, or innovative products that can help them to grow their business.

Banks are aware of the threat from challenger banks and FinTechs, who have already made inroads into the consumer market and are now setting their sights on SMEs. With the marketplace becoming more fragmented, SMEs are able to access more value-added services than ever before, and at a far lower cost than is offered by the incumbents. Payments and FX services is just one area that has undergone a huge transformation in the last five years, driven by the FinTech revolution, and banks are starting to feel the pinch as revenue generated by settlements, particularly cross border, take a hit.

Banks are being held back from digital transformation by several factors; budget limitations, legacy technology, and regulatory barriers. But what if banks could shift emphasis away from their role as a utility, enabling them to focus their efforts on the customer relationship like their more agile counterparts? The answer to the conundrum is simple – partner with an organisation whose sole focus is on being the utility. This model is attractive to banks as it eliminates the fear of disruption and conflicts of interest, while providing them with a conduit to make transactions happen faster and at lower cost, making them once again attractive to SMEs.

By not having to invest in the infrastructure needed to keep pace with challenger banks, incumbents can once again focus on what they are best at – providing advisory services.

SMEs have high confidence in banks, but their inability to adapt is becoming glaringly obvious. If banks choose to continue in the capacity of utility, they risk losing more market share to challengers. Forging partnerships with specialist financial technology providers will be key to banks being seen as collaborators – not utilities – by their clients.