Competition for the Small Business Market is Heating Up. How do banks compete?
Just a year or so ago, many small businesses were feeling the significant impact of the financial services meltdown. This impact all too often came in the form of unreliable or shrinking sources of credit or a disruption in access to financial services. This disruption frequently resulted from changes in bank personnel or perhaps failure of the bank. In response to this, many small businesses feel the need to diversify their banking relationships to avoid being left “high and dry” in the future.

by Cathy Pricco, Senior Principal, Banking Practice

Just a year or so ago, many small businesses were feeling the significant impact of the financial services meltdown.  This impact all too often came in the form of unreliable or shrinking sources of credit or a disruption in access to financial services.  This disruption frequently resulted from changes in bank personnel or perhaps failure of the bank.    In response to this, many small businesses feel the need to diversify their banking relationships to avoid being left “high and dry” in the future. 

Now, in the aftermath of the financial services meltdown, many banks are renewing their focus on the small business market.  With the increased regulatory restrictions in consumer banking and their higher average balances, it’s no surprise that some banks see the small business segment as their greatest opportunity for growth and recouping of lost fee income on the consumer side. 

While banks recognize small businesses can be attractive customers, many struggle with how best to attract and retain them.  Many banks are still focused on short term revenue replacement or loan/balance growth.  While that may help the bottom line in the short term, it won’t necessarily create long term growth or a sustainable competitive advantage.  In addition, regulatory changes make competing on product difficult at best and competing on price is neither prudent nor sustainable. 

With so much increased focus and competition, how do banks compete in this space?
The banks that will be the most successful in acquiring and growing this segment will develop a business strategy grounded in a solid understanding of small businesses’ needs, a clear understanding of which types of businesses they want to target and an eye toward offering and creating a differentiated customer experience. 

Most banks today claim to compete on customer service, but what does that really mean?
By nature, small business owners are required to wear multiple hats and have very limited time.  This frequently means managing their banking needs after hours and on weekends.  This makes it that much more critical for banks to meet their small businesses’ needs  in simple and value adding ways.  Ironically, many banks are trying to sell services touted to help businesses save time and money such as cash management services and online banking while the very interactions these businesses have with the bank are through channels that are anything but efficient for the small business. 

Understand small business segments and needs and bringing together the right combination of technology, people and processes can be the key to creating a truly differentiated experience for your small business customers.  While many banks realize the need to get away from the old “sit and serve” approach, few are really leveraging the technical capabilities to accomplish this.

Let’s envision what the future could hold for small businesses.

  • Online Scheduling: Similar to Apple’s Genius bar concept, imagine your small business customers’ having 24x7 ability to reserve a time that is convenient for them to meet  or talk with their banker or service representative.  No more back and forth calls or emails, or waiting at the branch. 
  • Seamless channels:  Imagine allowing the customer to begin and finish opening an account or submitting a service request on any combination of channels (in the branch, online, over the phone or on a mobile device) without having to start over.  Thus allowing them to return to the process and provide the necessary documentation how, when and where it is convenient for them.  This can significantly cut down on the time required by the customer and bank to complete the process.
  • Ask the Expert: Imagine sitting in the bank with your prospect and instantly bringing up via video conferencing an available treasury management or mortgage expert to aid in addressing customer questions.  Being able to instantly check the availability of the “expert” and bring them up allows there to be a “face-to-face” connection, eliminates the need for an additional appointment and expedites the sales or service cycle. 
  • Digitized Forms:  Paperwork frequently is a burdensome part of establishing or cross selling business services.  This process can be simplified for both customers and bankers with digitized forms which allow for prepopulating customer data from CRM or other systems, eliminating inapplicable sections of the form in real time based on the service being sold and creating a digital record of information for further processing.
  • House Calls:  While many small business bankers are out in the community today, few really leverage the available technology or reduce the need for the customer to go into the branch.  Advancements in mobile platform support, digital signature capture, interactive forms and secure communications can significantly expand how banking is done and improve efficiencies.  One small business owner I spoke with recently admitted he hadn’t stepped foot in his bank in four years. 
  • Scalable Relationship Management:  CRM systems can be set up to guide and inform small business bankers in ways that promote relationship building and timely contact with their customers based on priority, “trigger” events or anticipated needs.  This supports the banker’s ability to focus on serving their customers when and where it is needed most.

Conclusion
These are just a few of the many concepts banks could be exploring to offer their small business customers a differentiated experience.  With advancing technical capabilities, increased competition and rising service expectations created by other industries, now is the time for banks to explore the possibilities and create a unique experience for their small business target market.