The Welsh Economy Research Unit has looked at how Welsh SMES are supported by banks and the use of technology
Professor Max Munday of Cardiff Business School.
Welsh SMEs should evaluate more regularly whether their banking relationships, which are dominated by the major banks and have often been in place for years, as they could be missing better opportunities, highlights new research.
A report from the Welsh Economy Research Unit at Cardiff Business School, commissioned by Economic Intelligence Wales examines how fintech affects SME access to credit and relationship banking in Wales.
The survey undertaken for the research reveals that the four largest UK clearing banks were reported as the main business bank by close to 85% of the respondents. For over 50% of respondents, the length of time they have had a relationship with their main bank was in excess of 20 years and with a further 30% of respondents having been with their main bank for a period of between 10 and 20 years.
READ MORE: Next Welsh Goverment needs to boost built environment says RICSREAD MORE: Prime land site in the centre of Cardiff acquired by Cardiff Council
On the lack of appetite to change banks, while there can be good reasons for this, the report says: “A long-time association could indicate a strong firm-bank relationship to the advantage of the firm. It could also indicate the hold-up problem where banks hold on to customers by exploiting their information advantage to increase switching costs – an advantage to the bank.
“Either way there may be lost opportunities when the services of alternative providers are not evaluated. SME interventions in Wales in terms of business advice might at the very least signal the value of reviewing the main business bank periodically and exploring the market for financial services. For example, the survey revealed very few SMEs using the services of more recently instituted banks and of peer-to-peer lenders and crowd funders.”
Prior to Covid-19, around 45% of respondents applied for loans face-to-face, whereas at the time of the survey this percentage had fallen to 21%. There was a sharp increase in the percentage of respondents applying online with their main business bank, increasing from around 5% to 25%. Very few of the survey respondents used peer-to-peer lending facilities or crowdfunding initiatives to gain external finance.
The largest loan received by a responding SME since Covid-19 was £3m with a mean loan received of around £421,000 (median £75,000). The amount of loan applied for by the SMEs ranged from £30,000 to £3m, with a mean value close to £342,000.
The report also highlights rapid and beneficial changes in the way SMEs and banks interact. Since the pandemic, digital communication has increased significantly, with SMEs and banks engaging more frequently through email, online chat and video conferencing. Online applications for funding have also risen, with 25% of respondents saying that they now apply for loans online with their main business bank as it offers greater convenience and faster access to smaller loans.
The report notes that SMEs are increasingly comfortable using online channels for day‑to‑day banking and smaller loan applications. This shift has helped streamline processes and reduce communication barriers, particularly in areas where physical branch access has declined.
However, the research also reinforces the continued importance of relationship banking for larger, more complex lending decisions. SMEs with stronger relationships with their business bank were more likely to receive the loan amounts they expected and reported higher satisfaction with the support they received.
Professor Max Munday of the Welsh Economy Research Unit at Cardiff Business School said: “Our research highlights rapid changes since the Covid‑19 pandemic, with technological trends set to continue at pace. Wales is experiencing a healthy evolution in SME finance and is well‑positioned to benefit from a hybrid future—one that blends the efficiency of digital tools with the trust and insight that come from long‑standing personal relationships.
“Digital tools are widening access and improving communication, while strong relationship banking continues to underpin successful lending outcomes. At the same time, the findings point to clear opportunities for further growth, particularly in helping SMEs strengthen their digital capabilities so that businesses across Wales can benefit fully from both technological innovation and trusted personal support.
“Technological advances have significantly reshaped communication patterns. While face‑to‑face contact has traditionally reinforced relationship banking, new technologies have increased the frequency and ease of communication, benefiting both banks and SMEs. Online loan applications have also risen post‑pandemic. Fintech providers therefore play an important role in improving access to finance – especially for smaller loans -yet strong relationship banking remains essential for securing larger, more complex lending.
“Finance providers should maintain both digital and relationship‑based application routes to best support SME needs. This is important as the shift to digital channels means less digitally mature Welsh SMEs may struggle to engage with services, especially in rural areas with fewer branches. Improving digital skills is crucial for SMEs to access financial services, as online resources now play a key role in maintaining relationships.”
Rhian Elston, Wales investment director at the Development Bank of Wales, said: “This research is an important reminder of the role that funders play in supporting business growth and productivity across Wales. Understanding how SMEs engage with their banks helps us continually improve the way we work.
“At the Development Bank, we’re investing heavily in digitalisation to enhance the customer journey and make it easier and faster for businesses to access the finance they need. But we also know that nothing replaces the value of personal relationships. That’s why we continue to have teams on the ground throughout Wales—because face‑to‑face support remains a vital part of how we help businesses grow in all corners of Wales.”
Economic Intelligence Wales is a research collaboration between the Development Bank of Wales, Cardiff Business School, Bangor Business School, the Enterprise Research Centre, and the Office for National Statistics (ONS).
