When banks are exposed, why don't they do more to help businesses manage risk?
All successful businesses are constantly looking for ways to improve. However, banks in New Zealand generally ensure they have significant security over all business loans, usually over the owners’ residential properties. This means that there are few immediate returns in investing further in their clients’ business needs beyond debt facilities.
When banks have extended themselves, it has been in insurance, which in turn helps protect their own investments. In light of the banking royal commission in Australia and the reviews in New Zealand, banks are in the firing line for their insurance practices towards businesses and individuals alike.
So rather than asking whether the banking sector is lifting its game we should be asking what areas each bank is focusing on and how they are going about it.
Differentiation by service
Addressing the opportunity
As with many opportunities in today’s society, the opportunity lies in technology. By being smart and using technology, banks (and other service providers) can provide SMEs with many of the same tools that are currently only afforded to large enterprises. This is a significant opportunity for a bank to own the SME market and build loyalty with its customers as they grow from a small to a medium and then into a large business.
- are most focused on acquiring new business and dealing with staff, both in talent acquisition and retention*; and
- perceive the biggest risks to be around business interruption, cyber-risk, natural disasters, market developments and changes in the law** (three of which are easily insured against).
Why don’t we see this?
The reason that this doesn’t seem to be occurring is probably attributable to the banks own reluctance to take on the reputational risk to their own brand by providing advice that is outside of their traditional comfort zone.
Where to now?
The global economy remains relatively strong but history and many of the early indicators tell us that we are due for an economic downturn at some stage in the near future.