AMP last week “soft launched” its digital-only SME specialist bank for internal testing, AMP Bank managing director Sean O’Malley has confirmed, just a few months ahead of its public launch early next year.

The new bank, first announced in late 2023 and co-built with the UK banking-as-a-service developer Engine by Starling, will target Australia’s “underserved” micro and small business market – a segment O’Malley says is crying out for a focused banking and lending solution.

Speaking at the Future of Financial Services, Sydney 2024 conference on Friday, O’Malley said AMP’s commitment to launching this dedicated SME offering is backed by compelling survey data, which shows Australian SMEs – which represent 98 per cent of local businesses, employ 40 per cent of the domestic workforce, and make up one-third of the country’s GDP – are bereft of quality financing options and opportunities.

Small businesses are particularly challenged in today’s high-inflation, low-growth economic environment. Over the last 12 months, 45 per cent of small businesses have considered closing, O’Malley reported, with 57 per cent of regional-based businesses considering shutting up shop.

Citing AMP research, he revealed that more than half of the SMEs surveyed reported that their biggest barrier to expansion and, indeed, survival was insufficient access to financing or capital.

Among the most disruptive factors reported were difficulties in managing complex lending criteria, delays in receiving financing and, for those that do end up securing loans, restrictive and inflexible payment terms.

“This is a clear opportunity for us to assist small businesses,” he said.

As well, despite the influx of promised ‘time-saving’ technologies, almost two-thirds of business owners report spending more time on administration and compliance tasks than a year ago, burdened with a myriad of complex regulations, newfangled digital tools and payroll systems. Cyber threats also present an outsized risk to these less-well-resourced businesses.

“Clearly small businesses need the [financial services] industry’s help – and we’re a very important backbone of helping small businesses.

“This is something at AMP we’ve thought very deeply about. We are leaning into this challenge for small businesses,” with AMP’s soon-to-be-launched dedicated small business bank, he says, primed to address these burning challenges.

Addressing the SME gap 

For O’Malley, FSIs’ lending practices today are still overwhelmingly focused on retail consumers or larger businesses, with SMEs ultimately missing out.

“Today’s lending practices are, especially around credit decisioning, typically backward-looking. For startup businesses looking to expand, it’s increasingly difficult to be able to get a loan, to get finance or the capital to either start or grow a business.”

“We need to offer more flexible, more tailored lending solutions that are forward-looking not backward-looking.”

O’Malley also urged banks to take greater risks, “to take a punt” on smaller businesses, feeling the industry’s over-observance of regulatory obligations has “stymied” lenders’ risk-taking appetite.

“Obviously, banks have a prudential obligation to ensure that we’re doing that in a safe way. However, I’d say we’ve probably gone too far the other way and we aren’t taking enough risks. The real opportunity to focus some extra risk-taking on this critical part of the economy that is small business.”

Lack of competition in the SME lending market – necessary to spur innovation and better customer outcomes, O’Malley said – also presents a considerable opportunity for challengers.

“We think there’s a great opportunity for competition to be stronger” in the small business financing market.

“We know the emergence of various non-bank and fintech lenders really shows there’s a very strong, unmet demand from small businesses, with industry research showing that more than 70 per cent of SMEs really prefer to bank or get their financing via digital solutions.”

Additionally, the “fantastic” diversity of SME-targeted fintech innovations has pushed automated and data-rich solutions to the fore, enabling access to “pools of data that we have not traditionally used in… business lending”.

Smaller banks and credit unions, he argues, can therefore “position ourselves as key players in this space”.

However, emerging or challenger lenders need policymakers to act, O’Malley said.

“We are really calling on government and regulators to positively embrace competition in our industry. We need to ensure that the landscape is even and that banks and providers of all sizes can compete fairly.”

Banks also have an opportunity to support SMEs and relieve them of their administrative burdens, with O’Malley calling on lenders to provide “more integrated, less pure banking solutions, within all the ecosystems that small businesses need to thrive”.

Integrations of accounting software and payroll systems “are a good start”, he said, but there are “many more opportunities” to implement other core services through digital.

This, he says, is a core feature of AMP’s new specialist SME offering, which envisions a “digital ecosystem that is centred on helping small businesses thrive in their chosen markets”.

“We think that is somewhere where a digital- mobile-first solution is best applied to, and feedback from SMEs really calls that out.”

Despite the digital-only focus, the new banking offering, he said, does appreciate that bits and bytes have their limits.

“SMEs do want a relationship; they do want access to real humans, and they want access to real humans when they’re doing those tasks related to admin and banking – and typically that isn’t during business hours.

“Ensuring that we’ve got humans that can support small business 24/7 at the times they want to take care of their administrative work is really important. That’ll be very much part of our offering.”

Finally, he said, addressing SMEs’ growing cyber risk will be paramount.

“It’s incumbent on us to help small businesses protect themselves from fraud, scams, and data loss,” O’Malley said.

“We’ve got an enormous amount of intelligence and an enormous amount of capability that we can help small business with.

“As financial services, we’re in a unique position to deliver… greater cyber security resources and education, because, let’s face it, we’re all in this together.”

AMP’s SME specialist bank is slated for public launch in February 2025.