Total Politics - October 2010
Amber Elliott speaks to Steve Pateman, head of UK Corporate and Commercial Banking for Santander, about the bank’s commitment to understanding its customers needs
Getting the full story
Santander is a bank expanding in a difficult economic climate. Its corporate and commercial strategy of targeting SMEs with a “new way of banking” – highly focused on the specific needs of the client – is proving successful. In 2009, Santander’s lending to SMEs rose by a fifth and the bank helped 80,000 customers start new businesses or expand existing enterprises.
According to Steve Pateman, head of UK Corporate and Commercial Banking for Santander, its 4.8 million small businesses makes the UK an SME economy with potential for growth. And now, when businesses are struggling and often dissatisfied with the service they are getting from their existing bank, is the ideal time to enter the market with a highly customer-focused service.
This “new way of banking” isn’t really all that new for Santander. The bank has a 130-year heritage in Spain, and is a very traditional commercial and retail bank that has built its business on developing strong customer relationships. “This became less fashionable in recent years,” says Pateman. “But, actually, it is the best way to run a banking business.
“If you know your customers well and you know what makes their businesses successful, you can exercise the right judgement in the way you lend to them and you can work with them through the cycle.”
“The phrase ‘relationship bank’ has been somewhat abused over the last few years, but it is in our roots,” he continues. “We will always meet business customers face-toface, and we probably wouldn’t offer them anything until we had established a good understanding of the business’s needs. That could take two or three meetings.
“It’s a very different to the approach of other banks, who tend to be more salesdriven. Our customers really like the fact we spend time getting to know them.”
“We want to grow our business through conversations with new and existing customers, rather than through over-simplified broadcast messages”
This is how all banks used to operate 20 years ago, according to Pateman. “Sometimes regression isn’t entirely a bad thing,” he says. “If the banking industry approached customer relationships now the way it always used to, that wouldn’t be a bad thing at all.
“In Dad’s Army, Captain Mainwaring would refuse a loan to Corporal Jones, if he wanted to open a second butcher’s shop in Walmington-on-Sea. Mainwaring knew the town, and knew that it had no need for a second butcher’s shop.
“In more recent times, however, Jones would have been given the loan without any trouble, provided he had enough equity in his house to obviously support it, even though there’s no market for a second butcher’s shop.”
So the right approach is for banks to make lending decisions based primarily on a customer’s ability to repay. But, says Pateman, a truly effective decision can only really be made with a full understanding of the market in which that business is operating. He believes that the lender should have a responsibility for helping customers manage and develop their business, rather than simply “providing funds under a security blanket”.
Local knowledge is key and, as such, making sure the bank has a strong high street presence is essential. To this end, Santander recently acquired part of Royal Bank of Scotland’s business. Upon completion, this acquisition will include 311 RBS branches across England and Wales, seven NatWest branches in Scotland, 40 SME banking centres and some 244,000 SME customers. This adds up to around eight per cent of the SME market and will dramatically increase Santander’s presence.
Pateman explains: “The deal with RBS gives us the distribution capability that we currently lack. We are not going to rely solely on marketing to generate new business. I want it to be genuine, and I think the only way it can be genuine is through dialogue — two way conversations with new and existing customers, rather than through over-simplified broadcast messages.” Santander is a bank solidly committed to building deep and lasting relationships with its customers. Of course, this takes significant investment – both in terms of time and money – and the RBS deal clearly demonstrates the level of Santander’s commitment.
Santander’s work with metal manufacturer McKechnie Brass is a good example of how its approach to relationship-building has succeeded. The company, which dates back to 1871, required a loan, but found that its bank was “not even willing to discuss our needs”. Santander Corporate Banking, on the other hand, got to know the business, and understand it. The bank soon had the confidence to provide this historic company with the £2.5m invoice finance facility that has allowed business to grow.
68 | Total Politics | October 2010
Special report in association with
Jess Freeman looks at why increasing numbers of SMEs are looking to spread the risk
Is ‘multi-banking’ the way to prevent another credit crisis?
According to some of the government’s finest banking minds, business secretary Vince Cable and former Treasury adviser (now Conservative MP) Andrew Tyrie, the UK is currently facing a crisis – high street banks are not lending enough money to SMEs. But that isn’t the only barrier banks are raising for small businesses.
fiscal austerity. The research shows that 43 per cent of businesses are shopping around because their current provider is not offering the right service. As Pateman elaborates: “[Small companies would] rather manage the complexity than run the risk of finding that facilities they thought they could rely on aren’t going to be renewed.”
One business that is pursuing such a strategy is microbrewer BrewDog, which was forced to move to several banks when its main provider was unwilling to finance equipment they needed for new orders.
Co-founder James Watt explained to
New research by Santander Corporate Banking suggests that the recession has caused over a third of small firms to spread their finances across several banks. By dividing their credit up, savvy small-scale enterprises can spread the risk and cost of bank failures on their businesses.
the Daily Telegraph: “We
“We went to the bank and asked for £150,000
went to the bank, put on our suits, and asked for £150,000 for a new bottling machine and for new equipment. They laughed at us… We now have lines of asset finance with four new tanks. They laughed at us… We [now] have lines of asset finance with four difdifferent banks”
“Lots of people are saying, ‘I don’t think I want to put my faith in a single bank, so I’ll have two or three banks. If one of them gets into difficulties the other two should still be there’, explains Steve Pateman, head of Corporate and Commercial Banking for Santander.
The research shows that more than half of the firms that have multi-banking relationships do so to alleviate the risks of failures following the UK government’s bailouts. Balhousie Care Group, which has banked with the Royal Bank of Scotland for 14 years, is now making the switch to Santander and the Co-operative Bank. Their reason, as Balhousie’s commercial director Graham Ogilvie explains, is that “now is definitely not the time to have all of your eggs in one basket. You need flexibility for growth.”
But multi-banking is also a way for smaller businesses to get credit in a time of ferent banks, we’ve used it again and again. It’s the only way we were able to accept these big contracts.” Multi-banking is a growing practice. One in seven businesses has increased the number of banks they have worked with in the last three years. However, we can also take comfort from the fact that this is also likely to make the banking sector more stable. Take the collapse of Cattles, for instance. The doorstep sub-prime lender was a major casualty of the credit crunch, with a £3bn loan book. Absorbing that kind of debt would have dire consequences for a single bank.
As Pateman explains: “If you get into difficulties like Cattles did, not only is that a very big number for the banking system to cope with but in this case it
The findings from Santander Corporate Banking research
One in three SMEs (32 per cent) now use two or more banks
Multi-banking is more common amongst larger companies – over half (53 per cent) of these companies have more than one banking provider
One in seven (14 per cent) have increased the number of banking partners they work with in the past three years
More than half (51 per cent) of the firms which have multiple banking relationships say they have moved because of the need to spread risk in case of bank failures
44 per cent say they’ve changed to having multiple banking relationships to take advantage of more competitive interest rates
43 per cent are shopping around because their main bank does not offer the right products for their business concentrates debt in a smaller number of lenders. That creates enormous volatility and it’s probably unwise.”
The relationship between banks and business is changing. In a competitive market, small businesses are using multi-banking relationships to safeguard themselves and to keep themselves afloat. In Steve Pateman’s words: “Businesses have traditionally had one banking partner which has acted as depositor, creditor and guarantor.” Times appear to be changing.
October 2010 | Total Politics | 69