The COVID-19 pandemic was a defining moment for Australian small and medium-sized enterprise (SME) banking. As lockdowns and economic uncertainty swept the country, banks were thrust into the spotlight, tasked with supporting the backbone of the Australian economy. Now, as the dust settles, the sector faces a new set of challenges and opportunities. The landscape is marked by high customer satisfaction but also by inertia, undifferentiated services, and shifting expectations around digital and physical banking. For banks seeking to stand out, the path forward demands a nuanced, customer-centric approach to digital transformation.
Australian SMEs report high levels of satisfaction with their banks—79% are satisfied, and 95% are at least nominally content. Yet, this satisfaction is not a reflection of exceptional service or innovation. Instead, it points to a market where most banks offer similar products and experiences, leading to a sense of inertia. Nearly 41% of SMEs perceive no improvement in their banking relationship since the Royal Commission, a figure that rises to 75% among sole traders. This apathy is a warning sign: while banks have avoided widespread dissatisfaction, they have also failed to inspire deep loyalty or differentiation.
Trustworthiness, service quality, and convenience remain the top drivers of positive sentiment among SME customers. Technology and innovation, by contrast, rank low in shaping opinions. This explains why, despite the digital advances accelerated by the pandemic, most banks are still competing on traditional customer experience factors rather than on digital leadership. In such an environment, any perceived drop in service quality—such as a cyber-attack or system outage—can quickly erode customer trust and trigger churn. Notably, 60% of SMEs who experienced a cyber-attack found their bank less than completely helpful in the aftermath, highlighting the fragility of customer relationships.
The pandemic catalyzed a rapid shift toward digital banking, and Australian SMEs have largely embraced this change. Across all business sizes, a strong majority prefer digital channels for their banking needs:
However, the story is more complex than a simple digital takeover. Around 20% of SMEs still prefer mostly physical experiences, and even among digital enthusiasts, 59% recognize the importance of physical branches for certain services. The closure of local branches is a flashpoint: 54% of SMEs would consider switching banks if their branch closed, and another 28% would stay but be unhappy. In total, 82% are at risk if their local branch disappears.
This reliance on physical channels is not rooted in nostalgia alone. For many SMEs, branches provide a sense of personal service—authenticity, flexibility, and human connection—that digital channels have yet to fully replicate. The challenge for banks is to deliver these qualities at scale through digital means, ensuring that the move to digital does not come at the expense of customer trust or satisfaction.
Retaining choice is critical. While 78% of SMEs prefer digital payments, cash remains a significant part of the business landscape. Half of SMEs receive more than a quarter of their revenue in cash, and this proportion is even higher among larger businesses. Physical branches are still used for cash deposits, withdrawals, and ATM services, and 52% of SMEs expect banks to continue offering cash services for at least another decade.
Attitudes toward eliminating cash services are split—51% support it, 49% oppose. Interestingly, those with higher cash turnover are more likely to prefer digital payments, suggesting that operational burdens, rather than tradition, drive preferences. The implication for banks is clear: a successful transformation strategy must support all customer preferences, offering a true omnichannel experience that allows SMEs to bank how and where they choose.
Australian SMEs are open to digital innovation when it enhances convenience and service. For example, 68% have used their bank’s chatbot service, and 91% found it helpful. Artificial intelligence and automation can help banks deliver accessible, cost-effective support across channels, but only if these tools are designed to replicate the best aspects of personal service—active listening, flexibility, and empathy.
The uniformity of banking services in Australia has created a market where switching is rare and loyalty is shallow. This inertia is both a risk and an opportunity. Banks that can break the mold—by building more secure, supportive, and differentiated experiences—stand to capture the attention of SME customers who are otherwise content to stay put. The key is to move beyond adequate service and invest in areas that matter most to SMEs: trust, reliability, and seamless omnichannel experiences.
To build loyalty and stand out, Australian banks should consider the following strategies:
Australian SME banking is at a pivotal moment. The pandemic has accelerated digital adoption, but also exposed the limits of undifferentiated service and the risks of complacency. Banks that succeed in the next phase will be those that blend the best of digital and physical, invest in trust and service quality, and deliver truly omnichannel, customer-centric experiences. By doing so, they can turn inertia into opportunity—and build lasting loyalty in a market ready for transformation.
To learn more about how Publicis Sapient can help your bank build a differentiated SME strategy, contact our financial services experts for a deep dive into the latest research and actionable insights.
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