Bayliss says as business banking becomes more industrialised by the big banks, a huge void was opening up between “the service SMEs want and the services they were being provided with, but also the funding they wanted and the funding being provided”.
And at the end of the day, the big banks basically ask what personal asset a SME business is going to put up against the loan and, according to the SME Banking Insights report, the top requirement SMEs want in their business banking relationship is the removal of personal covenants as loan security.
Moreover, nearly 50 per cent of SMEs surveyed said what they value most in their banking relationship is a more intimate understanding of their business operations and expertise (48.4 per cent). Secondly, a strong understanding of their unique industry sector vertical (37.5 per cent) and thirdly, more streamlined compliance, know your customer (KYC) and documentation requirements (35.3 per cent).
The aim of the research for Judo Bank, now in its third year, is to understand the pain points affecting the nation’s SMEs and to then use the results to fix them.
What’s been interesting for Bayliss is how little the results seem to change every year. A case in point is the rising dissatisfaction with the major banks which has seen SMEs’ trust in the big banks falling from an already low 2.4 on a 10-point scale in 2019, to 2.26 in the last year.
Judo Bank chief relationship officer, Frank Versace, was slightly taken aback with this result considering “the level of political intervention and the amount of noise a lot of the banks were making in the market around the SME support they were providing”.
Versace thought because of Covid the trust index might increase and that the funding gap would be reduced but “it was the opposite in both instances”.
One of the things he wasn’t surprised about was the fact the majority of SMEs lamented the quality of their banking relationship.
“Customers just don’t have any faith that they can have an intelligent high-quality conversation with a relationship manager who can make a decision.
“It’s a fact that there has been a total breakdown in trust, at a time when the business community needs the banking sector the most – it’s both unsurprising and disappointing at the same time,” Versace says.
Building that trust and having honest discussion about a business is what Judo Bank have become renowned for. It’s not industrialised banking – it’s about a banker listening to a customer’s story and making a decision. It’s not a one size fits all approach.
Both Bayliss and Versace agree Judo is all about providing SMEs with a more traditional banking relationship.
Recounting his early career in banking, Bayliss says the basics of lending could be summed up as the four Cs of credit.
“The first C is character – you’re basically looking at the fundamental character of who you’re lending to, their experience, track record, the degree they understand their business, and that they’ll be able to pivot during things like Covid for example.
“Secondly is cashflow. What is the underlying cashflow of the business? Businesses go bust because they run out of cash, not because they’re not profitable.
“Thirdly is capital. Is the risk-reward trade off correct? Am I getting rewarded as a bank for the risk I’m taking? Then the fourth C is collateral, security, your house. It was in that order.
“You were trained to only take security as an insurance policy because you’ve made the other three assessments.”
According to Bayliss, the big banks do the opposite and because everything is industrialised, the nuances and unique facets of an individual SME are lost. Unfortunately it means the whole SME sector is suffering.
Judo have made a point of returning to a more personal banking relationship and Bayliss says “we call it banking the way it used to be, banking the way it should be”.
For Anytime Fitness franchisee, Fred Drew, Judo’s personal touch and traditional banking model proved to be a lifeline during multiple lockdowns in Victoria last year.
According to Drew, his four gyms on the Mornington Peninsula were set to struggle as the government lockdown meant no members could visit his premises and more damagingly, many members stopped their direct debit membership payments.
“It was unprecedented. Anytime Fitness, we’re a 24-hour gym and we hadn’t been closed ever, for 11 years and then suddenly, our entire revenue base based on membership and membership income was completely, 100 per cent turned off overnight,” Drew says.
Although he was still a relatively new Judo customer, Drew says the bank “came to me and proactively offered to pause my payments during the lockdown”.
“They handled things very well. We found out a lot about various people in various businesses during lockdown and Judo performed fantastically,” Drew says.
Co-founder of broker firm Duo Finance, Eamonn Keogh says he had introduced Drew to Judo in 2019 when the gym proprietor was looking to switch banks because the previous relationship had become a little fraught.
“I’d been following the Judo story closely and I realised the [business banking] market needed another player.
“Small business needed bankers to be able to make decisions a lot quicker than what was happening and Judo’s model really appealed as that old school relationship banking is exactly what Fred needed,” Keogh says.
Drew says Judo were supportive before Covid hit and had agreed to help expand the business but what really struck him was that “despite being locked down for nine months, they stuck to their word, they didn’t pull the offer”.
“Obviously, they required some comfort and proof that when we reopened things were still as they were but as soon as they saw that, they were onboard. I was really shocked by their integrity and how willing they were to support me after a global pandemic – it was pretty impressive.”
For Judo Bank’s Versace, this level of personal service and support for the nation’s SMEs through good times and bad is “the core pillar this business has been built on”.
“We want to re-introduce, the empowered relationship banker back to the market. Bankers not tied up in webs of policy and process but bankers that are able to make smart, common sense decisions about businesses again.”
Reach out to 13JUDO or contact your dedicated Judo banker to discuss your business plans, and any opportunities you see that could benefit from our backing.