Beyond the monolith: a taxonomy of relationship banking models and segmentation levels in SMEs

Abstract

Purpose This study aims to investigate the reality of relationship banking (RB) in the small and medium enterprise (SME) context, specifically how banks organize activities, define SMEs and manage the SME–banking relationship. Design/methodology/approach Using qualitative methods, this study uses a case study approach, conducting in-depth interviews with relationship managers from major New Zealand banks. The data are analyzed using thematic analysis with a process- and mechanism-oriented lens. Findings The study identifies bank criteria for defining SMEs, considering factors such as business complexity, owner/manager ethnicity and business lending. Banks divide their activities into personal and business banking, with the latter further classified as micro-, small- and medium-sized businesses based on borrowing amounts. Three types of RB emerge, namely, micro-business (online/many-to-many) relationship model (RM), small-business RM (one-to-many) and medium-sized business (one-to-one) RM. This study presents a taxonomy of business banking relationship management models that capture the structure and dynamics of the three RB levels. Research limitations/implications Interviews may introduce biases or limited perspectives. Findings specific to New Zealand may not universally apply. Future research could explore different regions and assess the impact of these RB models on SMEs’ financial outcomes and satisfaction with banking services. Practical implications Findings assist banks in organizing activities and managing SME relationships. Taxonomy aids in categorizing companies and determining appropriate management models. Consequently, tailored services can be provided based on SME needs, offering customized financial packages. Social implications RB models prioritizing ethnicity consideration and personalized services contribute to enhanced financial inclusion for SMEs, thereby fostering broader socioeconomic growth and development, partly through the provision of tailored financial packages. Additionally, relationship managers specializing in specific industries can offer valuable insights and assistance to SMEs, fostering mutual trust and collaboration. Originality/value To the best of the author’s knowledge, this is the first study to hypothesize, investigate, identify and provide evidence for three RB levels in SMEs. The presented taxonomy contributes to the literature on the SME–bank relationship by providing a structured framework for effective SME relationship management. Insights can help banks develop strategies and practices for serving SMEs, ultimately contributing to their growth and success.