KfW Research: Personal interaction continues to be the preferred mode of communication between German banks and SMEs

• Branch closures and digitalisation are influencing communication patterns only slowly
• Personal contacts and branch visits are decreasing but remain by far the most important communication channels for SMEs
• Use of modern digital channels still plays a minor role

Despite the persistent thinning out of German banks’ branch networks and the growing trend towards digitalisation in the finance industry, face-to-face interaction still dominates communication between small and medium-sized enterprises and credit institutions. This is the finding of a current representative analysis conducted by KfW Research on the basis of the KfW SME Panel. SMEs prefer personal interaction for almost all banking services. This applies to more complex financial services in particular, such as loan applications and financial advice (82% and 75%). Digital communication through online applications or apps, on the other hand, plays only a minor role in SMEs’ banking operations thus far. It is only in cash management that businesses are using digital channels more frequently (44%).

Nevertheless, the special analysis of the KfW SME Panel points to an emerging transition in the communication patterns between banks and SMEs that can be observed across the SME sector at large: 38% of businesses responded that personal interaction with their credit institutions has diminished in the past five years, and 34% reported that they were visiting their branch less frequently. Even more pronounced changes can be observed in the group of SMEs that saw their primary bank’s local branch close down between 2013 and 2018: 58% are experiencing less personal contact and 55% are making less use of the branch.

SMEs are currently replacing the reduced personal interaction resulting from the thinning out of their local bank’s branch network primarily with more frequent telephone calls or email correspondence. The KfW analysis shows an increase in email communication in 40% of SMEs over a period of five years. At the same time, 26% of SMEs made more phone calls. These increases were even higher for businesses affected by branch closures (46% and 39%).

Modern digital communication channels (other than email), on the other hand, play a much smaller role. Over the past five years, the use of apps in the SME sector has grown by a moderate 19%, as has the use of other digital communication channels such as online/video consultations or chat bots, which rose 13%. Businesses affected by branch closures have also increased their use of digital options by a small margin only (22% and 13%).

“The classic relationship between a business and its primary bank is by no means out of date. Growing digitalisation currently can do little to shake its foundations, but that will probably change. New figures show that credit institutions’ branch closures are advancing much faster than expected. We currently expect some 2,000 bank branches to close each year for the time being. This will provide a boost to digital channels and change communication behaviour on a lasting basis”, summarised Dr Michael Schwartz, SME expert at KfW Research.

The current KfW analysis of SMEs’ communication with their regular banks is available at www.kfw.de/fokus.

Details about the database:
The KfW SME Panel (KfW-Mittelstandspanel) has been conducted since 2003 as a postal tracking survey of small and medium-sized enterprises in Germany. The basic population of the KfW SME Panel includes all private-sector companies from all industries with annual turnovers of up to EUR 500 million.
With a database of up to 15,000 companies a year, the KfW SME Panel is the only representative survey of the German SME sector, making it the most important source of data on issues relevant to the SME sector. The main survey of the 16th wave was conducted in the period from 12 February 2018 to 22 June 2018.