We live in a globalised world, in which business regularly spills across borders. Despite the cultural dominance of the largest corporations, with their high-profile brands and their vast financial resources, it’s also a world that’s reliant on small to medium-sized enterprises (SMEs) as a source of innovation, specialisation, and fresh blood into the world of business. Yet SMEs often struggle to find the banking support they need for international finance.

World Designed for Giants

It’s easy for large corporations like Alibaba and Google to get the financial support they need. The behemoths of the banking sector, institutions like Citibank and HSBC, are ideally suited to work with them.

With branches across the world, these large institutions can provide everything an international business might need. They work in different currencies, arrange large international transfers, provide loans and payment services on a global scale. And because they’re large operations, they can do all of this on the scale large businesses want.

Big businesses find these services accessible for two reasons.

One is that the banks have an incentive to adapt and personalise services to them. When a business is putting billions of dollars through your bank every year, it’s easy to justify the costs of tailoring services to them and of providing support staff just to help them with any bureaucratic issues.

The other is that large institutions can more readily spare the personnel to tackle bureaucracy. They can afford staff dedicated to dealing with banking, with all the expertise and training that entails.


The Problem for SMEs

For SMEs, large banks can be problematic.

Firstly, they may be too expensive. Business fee structures shaped to support large businesses and transactions can be too costly for those with a smaller infrastructure.

Secondly, big banks aren’t as interested in these businesses. They provide services for SMEs because it’s good to have more customers, but they aren’t going to personalise the experience like they would for a corporate giant.

As a result, the bureaucracy involved in tapping into international business banking can be frustrating, particularly for SMEs using forward-looking business practices. User interfaces are often old-fashioned and clunky, there’s a lack of integration with the accounting software they use, and the bureaucracy involved in setting up an account or accessing customer services can feel crushingly slow.

SMEs use banks to make most of their foreign transactions, yet 80% don’t know the true cost of foreign exchange through their banks. These are seldom transparent, with some banks charging twice as much as others for exchanging the same money. On a £50,000 transaction, over 96% of the bank’s profit comes from this spread. High fees mean that these banks are profiting at the expense of SMEs.

The Smaller Bank Gap

The obvious answer to this is for SMEs to go with smaller banks. There are a growing number of these providers, from traditional institutions to innovative tech-oriented startups. Surely they can fill the gap?

To a certain extent, the answer is yes. Many smaller institutions have invested in better user interfaces and onboarding experiences applicable to smaller businesses. They have more incentive to provide personalised service for SMEs, as they don’t get money from the corporate giants.

But smaller scale provides its own problems, especially with going international. Clients looking for these services may face strange problems like supposedly international accounts that are separated out by country or a lack of IBAN, a code fundamental to international banking.

Again, scale is part of the problem. Smaller banks may not have the resources to provide technical facilities that are considered ordinary by their larger cousins. They may also be intimidated by the legal demands of international finance, such a FATCA, the law through which the US government demands banking information on its citizens around the globe.

Expertise adds another challenge.  Anyone working with money wants to know what they’re getting into, and it’s hard for smaller banks to develop expertise on a broad spread of countries and industries. They may be averse to taking on international clients when they’re not familiar with the country or business involved

Is Specialising the Answer?

The answer, both for SMEs and for smaller banks, could be for these banks to specialise.

Meeting the technical, legal, and knowledge demands of every sector around the world is impossible for a small bank. But they don’t need to cater to everyone – just to enough companies to make their business profitable. If they can identify a significant sector where SMEs need better international support then working with that sector could provide for all their needs.

For example, American e-commerce companies working in the EU have to deal with a complicated regulatory situation. FATCA demands that they provide information to the US government on activities in Europe, but this demand has potential to clash with EU data protection laws. Some European countries have accepted the US’s extension of its authority into their residents’ bank accounts, while others haven’t. A bank providing specialist services for these companies, including both technical integration with e-commerce software and advice on handling FATCA in Europe, could take a dominant position in an important specialist sector that is set to grow as e-commerce keeps expanding.

Working across borders is a complicated, messy business. The biggest companies can rely on their special status to get them the services they need, but this doesn’t help SMEs. Specialised banking could fill this gap and provide a unique selling point to make smaller banks stand out from the pack.

A small bank can’t get everyone’s custom, but it can serve one group really well.