AI has been shaking things up for small and medium-sized businesses (SMEs) lately. What used to feel like fancy tech reserved for big players is now pretty much at everyone’s fingertips. Teams are working smarter, digging up insights faster, and personalizing customer experiences like never before. According to Twilio’s State of Customer Engagement report, nearly all (97%) Aussie companies say AI is already making a difference in areas like support, marketing, and personalization. And businesses are noticing the perks-customers are spending more and sticking around longer.

Sounds great, right? But here’s the catch: while companies are hyped about AI, customers don’t really feel like brands get them. There’s a serious disconnect. Sure, 79% of Australian businesses claim they deeply understand their customers. Yet only 27% of customers agree with that, down a big chunk from 46% just last year. So if AI is supposed to bring brands closer to their customers, why do people feel more misunderstood?

Looking at a study with over 7,600 consumers and 600 business leaders across 18 countries, one thing’s clear-there’s a growing expectation gap, and SMEs need to close it if they want to build trust, loyalty, and sustainable growth. Here are three key takeaways to help bridge that AI gap.

Make AI Work for Customers, Not Just for You

Too many brands focus on the perks AI brings internally-saving time, automating tasks, boosting employee productivity. Those are important, but the real question is: what does AI actually do for the customer?

Take AI chatbots. When done right, they’re awesome-cutting wait times and quickly solving problems. But when they fail, they’re frustrating and make customers feel ignored.

Our research found that while about two-thirds of Australians feel a bit worn out by AI, many still see the bright side when it actually helps them-whether that’s finding the right product (46%), fixing service issues faster (43%), or giving 24/7 support (35%).

Keep Humans in the Loop-and Be Transparent

Even as AI tech gets smarter, people still crave real human connection. In fact, 61% of Australians say AI-driven interactions should feel human. If AI can’t solve the problem, more than half (56%) want to talk to a person instead.

And transparency is key. Nearly two-thirds (62%) want to know when they’re chatting with AI, and a huge 85% want to choose how brands communicate with them-no automatic AI assumptions allowed. It’s all about control and keeping that sense of autonomy.

A standout example is Aussie online car loan platform Driva. They whipped up a smart AI chatbot in just two weeks that sped up and personalized customer service. But crucially, Driva didn’t ditch human agents. Customers can still opt to talk to a real person anytime, which builds trust and keeps things feeling personal.

AI-Powered Personalization Is the New Must-Have

SMEs are catching on fast-AI is the only way to deliver personalized, relevant experiences at scale. But the execution still has some catching up to do.

While 95% of Aussie businesses say their AI personalization is working, only 5% of customers call those experiences “excellent.” Another 39% say they’re “good,” and a whopping 40% rate them as just “average.”

That means there’s a lot of room to improve how AI tailors experiences to actually delight customers, not just check a box.

Bottom line? AI is a game changer for SMEs, but only if they remember it’s about the people on the other side of the screen. Make AI work for customers, keep humans in the mix, and nail personalization-and you’ll be closing that AI expectation gap in no time.