MasterCard: A credit to SMEs - Thomas Harris
SMEs drive jobs and economic growth, and their ability to succeed is often read as a marker for the strength and competitiveness of an economy. So why don't card-issuing banks tailor their approaches to suit their needs more often? Future Banking speaks with Thomas Harris, senior business leader at MasterCard, about what can be done to make life easier for SMEs - and who's already doing it.
Last year's Queen's speech set out a broad programme for government support for small to medium-size enterprises (SMEs), with the Coalition pledging to make the UK the "best place in the world" to start and run a business - through tax incentives and immigration policies encouraging fledgling small businesses to relocate to the UK.
The Bank of England, too, is moving to help SMEs succeed, having spent much of the year working hard to improve SMEs access to credit - a critical issue for companies that don't have the capital to take out big loans from the offset. It's clear that they are now seen as a crucial driver of jobs and growth as much as their larger counterparts.
According to Thomas Harris of MasterCard, banks across the UK and Europe are increasingly conscious that SMEs are vital to its business and to the health of the wider economy, and are following governments and central banks in introducing measures to help them.
"For that reason, it's actually something that is a focus for banks in the UK and in Europe," he says. "If you look at the combined GDP of SMEs across Europe, it totals more than $3.4 trillion - that would make it the fifth-largest country in the world.
"There's definitely a profound recognition that they are critical to the well-being of the economy and are worth investing in."
Lay the cards on the table
As a market-leading card issuer operating in more than 200 markets globally, MasterCard is in a good position to evaluate the differing needs of SMEs across the world, helping it to take innovation observed in one market and bring that new best practice to another."This enables us to provide significant value for our bank customers, who tend to operate in a smaller number of markets, and are more focused on the day-to-day management of their business," Harris argues.
He admits that in the field of opening accounts, banks could be doing more to make things easier for SMEs and simplify the application process.
"We need to leverage all of the customer information that banks have access to, in real time, at the point of application," he says. "Now online applications are getting streamlined, we're seeing the number of fields reduced; the amount of information required being limited; and we're seeing innovation on the types of data that's being gathered to augment the underwriting process."
Especially for you
But banks must also push SMEs to open specially tailored accounts, he continues, and dissuade them from running their businesses using consumer-type ones, which is still common, despite its impracticality. Harris argues that this is an area in which education is crucial to the new relationships developing between SMEs and their banks. Organising payments is not usually a top priority for small-business owners compared with searching for new customers or hiring new employees, he says, so it is important for banks to emphasise the point.
"It's a struggle for mind share, with the SMEs," he continues. "They're very busy, but if you can demonstrate there's a benefit to doing something, they will do it, they're smart people. I think, it's an ongoing process; it's not going to happen overnight.
"There's a realisation in the SME community that they need to have these separate current accounts and also payment products; we're moving in that direction, but we're not there yet."
Harris says that MasterCard has detected a trend; that SME product innovation lags behind the consumer by maybe two or three years, which customers are increasingly less tolerant of.
"They're looking for innovation on the consumer side to be provided either simultaneously or within six months on the SME side, so we have to be nimble, and I think we are," he says. "We conduct a lot of customer research, we're very customer focused, and if we're not addressing a specific customer need with a new product, then we have to ask the question why we're involved in that activity."
Big data issue
MasterCard is also working to expand its use of data, to help make customers better at running their companies and understanding their market. Through the use of MasterCard's Smart Data reporting solution, the company can help businesses manage their own data, track their spending, reduce costs and consolidate suppliers, among other things.
They leverage a huge amount of data globally, Harris says, and are increasingly looking at it from an analytical perspective. He uses the example of a hypothetical restaurant, which could be provided with information about the performance of competitors with similar business models, to demonstrate how big data could be used to help SMEs.
"This is available across Europe, through our banks that participate," he says. "Our ethos at MasterCard is always to provide a platform to as many customers as we possibly can, and the platforms work for clients globally."
So what countries should be held up as having good models for the promotion of SMEs? Turkish banks are consistently pointed to as shining examples, which Harris argues is due to an emphasis by lenders on instalments, a more flexible approach to lending and payments.
"Instalments fit with the needs of SMEs in that market - they are a good fit for the agricultural segment and the tourism and hospitality segment, where you tend to have quite a difference in cash flow between investments and return on that investment."
Understanding that SME needs are complex and varied, he says, is all-important, particularly when it comes to lending.
"A lot is written about how SMEs struggle to find access to credit, but I think less is written about the type or duration of that credit," he believes.
"What SMEs are looking for is more like short-term financing rather than long-term capital investment. There's a little bit of a double-edged sword; the fact that they're not looking for long-term financing means they're still not willing to invest and hire, and not willing to grow their business aggressively. On the other hand, they're seeking out sustainable growth, which is positive in my view."
And as the way consumers use cards changes with new technology, so too does the way MasterCard does business. For example, Harris points to the rapidly expanding availability and use of contactless cards in the Netherlands, Nordic countries and the UK.
"This is critical as well because it's actually changing the way that SMEs and consumers interact with our products at the point of sale or the point of interaction," he says. "And we're already seeing that in a lot of other markets. This is fundamentally changing how customers use our products"
These developments in technology make life easier for consumers and small-business owners, MasterCard believes, and Harris welcomes anything that makes banking easier for consumers and SMEs with enthusiasm.
"We're interested in making payments very simple and secure, and what could be simpler than tapping a piece of plastic or a phone rather than having to swipe or dip in the old world? It's only going to grow from here."