In recent years, banking small and medium-sized enterprises has become an increasingly interesting segment strategically, especially if ‘interesting’ is a euphemism for ‘demanding’. At times, bankers feel that they are required to provide investment banking-level support for their SME clients, while their margins remain much closer to those of mass retail banking.
And the weight of that non-financial advisory support is only getting heavier, with sustainability requirements generating so much client demand.
This year’s winner of the award for the world’s best bank for SMEs, Banco Santander, has decided to embrace the opportunity for forging relationships that these challenges present.
Take the demands of sustainability: SMEs need to meet a wide range of environmental, social and governance-compliance (ESG) criteria, not simply to meet their own ambitions but in order to be part of the supply chains of larger corporates. SMEs simply don’t have the scale to fulfil these functions in-house or to pay large fees to external consultancies. It is clearly an opportunity for the banks to help. But it is a delicate balance to provide support without eating into the already modest margins that SMEs generate.
Shortlisted
- Ecobank
- UOB
With over four million global SME clients, that balance could easily become out of kilter for Santander. And it is not just sustainability – SME clients need help navigating many different challenges and opportunities.
In Mexico, Santander is one of the largest private-sector banks and has identified nearshoring as a potent driver of growth from companies of all sizes. Héctor Grisi, chief executive of Santander Group, and previously head of Santander Mexico, says that the bank thinks nearshoring could add four percentage points to trend national GDP growth and provide a huge tailwind for Mexican entities of all sizes.
The bank is well positioned to meet the growth in credit demand, as well as the growth in other financial instruments, but to maximize this opportunity for SMEs the bank will need to help its clients with a range of non-financial trading and strategy advice.
So how is Santander squaring the circle of advisory demand and segment profitability?
“Digitalization is helping,” says Grisi. “Santander is digitizing support that its SME clients rely on – in all the areas they need, such as trade finance and sustainability – to increase efficiency while enhancing the quality of our service. We also earn the loyalty of our customers by combining advisory services with ESG-related products to maximize the cross-selling opportunities that arise.”
For example, Santander has developed very specific loans for green buildings, such as those that finance solar-panel installations, smart meters and energy-efficient lighting, as well as reduced-cost mortgages to buy A or B energy-rated buildings. The same applies for SMEs involved in clean mobility, renewable energies, sustainable agriculture and the circular economy.
Meanwhile, the bank’s fintech Ebury, which was acquired in 2020, continues to onboard SME clients that require cross-border payments, cash-management and foreign-exchange support. The acquisition has proven to be a shrewd one and differentiates Santander in the SME segment.
Over the past year, the platform’s active customer base increased by 16%; in total, Santander’s Ebury and One Trade platforms deliver cross-border trading services to more than 30,000 SMEs.
We earn the loyalty of our customers by combining advisory services with ESG-related products to maximize the cross-selling opportunities that arise
Héctor Grisi
In the past year the One Trade product made good progress in its objective to become the international-payments, FX and trade-finance services platform for the whole Santander group, replacing some of the local legacy systems with a common and integrated technology solution – as well as making it a better proposition for SMEs.
Santander also squares the SME circle by looking at revenue opportunities that the sector presents elsewhere – either across the group today or for banking growth in the future. SMEs are a huge source of potential future banking activity. In the medium-term, SMEs populate the new business pipeline for corporate banking and, potentially, beyond that for investment banking.
Santander also mines its global SME network for private banking leads. Many SMEs are created by serial entrepreneurs or high net-worth families looking to diversify income sources – and the investment management and credit opportunities and even insurance fees that come from effectively cross-selling to SMEs can be healthy.
The potential should not be underestimated. Santander not only seeks to maximize the flow-through of SMEs to larger business, but it also targets the underlying entrepreneurs for long-term revenue generation.
The scale is impressive: in 2022 Santander hit the milestone of over a million individual awards of aid for students, professionals, startups and SMEs – the bank awarded over 265,000 grants last year alone, worth around €100 million.
The bank also runs programmes through SantanderX to support startups, scale-ups, micro-businesses and SMEs covering every stage of building a business, with special training and networking with customers and investors as they grow.
