Hidden Opportunities: How Banks Can Win More Small Business and Gen Z Relationships 

This article is part of ProSight’s series on the growing overlap between consumer and business banking as more Americans pursue side hustles, entrepreneurial ventures, and multiple income streams. For community banks and credit unions, these trends present an opportunity to engage future business customers earlier in their journey. In this Q&A, Chris McNulty, Director of Strategic Partnerships & Product Management at Jack Henry, discusses how financial institutions can identify entrepreneurs within their existing customer base, deliver more relevant products and services, compete with fintech providers, and build relationships that grow alongside these emerging businesses. 

ProSight Financial Association: Is it fair to say that it’s getting more and more important for financial institutions (FIs) to identify and serve customers who are running side hustles and micro/startup businesses? If so, why? 

McNulty: Absolutely—the micro merchant business segment has been underserved by traditional merchant programs and community financial institutions for years. Fintechs have captured a large market share and are now offering traditional banking services to this customer segment, which puts traditional FIs at risk of losing these high-value customers—including their deposits. The average deposit balance is 4.6 times larger than average retail deposits for the SMB segment.  The number of people with side hustles has exploded in the last five to 10 years so the opportunity is only growing for the community FI to capture.  Many of these businesses grow into larger SMB customers, especially with some help from their community FI. 

How do financial institutions and their personal account customers who are pursuing businesses both benefit if the customers have the proper business accounts and services? 

Beyond recurring fee income growth for the FI, there is the benefit of stickiness and loyalty resulting from having multiple banking products and services in use by these customers. Most community FIs have less than 10% penetration in their business customers for solutions like merchant services.   

The businesses gain tons of value by having services and support right there in their local community institution and being supported by someone who truly has their back and will protect them from egregious pricing practices prevalent with some solutions. Most businesses operating out of personal accounts still want to be treated like a business (and their needs understood) and would benefit from the business tools and help that a local bank or credit union can provide. 

The challenge can be identifying these hidden businesses in the retail accounts, which makes data analytics tools so critical for the community financial institution. Accessing the data and leveraging the information helps drive the focus to the right customers needing business services. 

If you would like, can you comment on the perhaps sociological as well as economic and technological factors for why startups, microbusiness, and side hustles are becoming more common—for Gen Z but perhaps other generations as well? 

 There are many theories out there, but one I subscribe to is how all of our lives changed post-COVID with so many businesses operating with remote workers.  That has provided for time that was wasted on a commute or “waiting for quitting time to go home after work was complete.”  People are filling this time with passion projects that often turn into money-making businesses.  People can now have their primary job or career and still pursue their passion and add to their income or diversify how they earn a living.  This spans across all demographics, but a Gen Z person who has not found their “forever career” or is just starting to look for a career may be even more incented to start a business. 

 Is it possible that someone with a side hustle or small business might qualify for more financing for a mortgage or other personal account? If so, what are the implications and opportunities for banks? Is that a focus for your customers at all? 

Yes, and understanding more about that business and their cash flow and growth dynamics can help a financial institution decide if the risk is warranted or at what point they want to participate. Many of these customers are going to non-traditional funding sources in fintechs. That builds loyalty and a relationship outside of a bank or credit union,  so it is important for a community FI to stay in the loop via partnerships even if they choose not to participate in the lending for early-stage businesses. Knowing more about the side hustle can help support decisions for personal loans as well. 

How can and do FIs operationalize the fact that members of Gen X can be a nexus for relationships with Gen Z and other generations? What kind of marketing, conversations, and services can FIs undertake with Gen X customers?  

Many FIs have started to tap into the generational aspect of their customers by setting up accounts early within a family and leveraging relationships with Gen X customers to tap into that expanded opportunity before the Gen Z self-sources outside the bank or credit union.  Dedicated web pages and marketing programs to communicate these programs and the value of banking locally generate the conversations needed to win.  

It’s important to communicate with customers in a way that appeals to them based on their generation. But that means having different playbooks for several different groups. That seems like a big undertaking for a small bank. The 2025 Jack Henry Financial Sentiment report says even just a few steps along those lines are better than none. Can you give some examples?  

Understanding how the different groups prefer to do business is critical to attracting and retaining these customers. A simple example is understanding which groups prefer to come into a branch for a face-to-face account set up vs. a full digital onboarding experience with zero human interaction. Community FIs need to meet their customers where they are and how they want to engage. A one-size-fits-all marketing or account onboarding approach is a thing of the past.   

What are some examples of how traditional financial institutions miss business-financing opportunities among their personal account customers, who then go on to borrow from fintechs or other competitors?  

Not knowing who the customers are is where the failing begins.  You need to know who to market the financing solutions to in order to capture those customers before they go outside the FI to find alternatives. If they do not know the FI has solutions to help them and/or a frictionless application process with quick decisioning, then they will find the next fintech that is blowing up their social media with ads and promotions. Once the business customer finds an alternative, they are susceptible to other banking services that a fintech may offer—jeopardizing even the existing business a community FI has with that customer. 

In terms of technology and partnerships, what do traditional FIs need to have in place to keep more of that business for themselves?  

It starts with the digital front door and being the hub for the customer’s financial services. Being able to see balances in accounts outside the FI through the digital banking app helps make the community FI the primary hub for managing all of a customer’s relationships and financial needs. Partnering with the right fintechs that can add value to your customers but are sourced through the FI helps protect those relationships. The more a customer uses the FI’s digital banking app, the more opportunity to promote additional services and products to them. Embedding additional services into the digital banking environment adds even more value to the customer and reduces the number of apps or platforms they have to manage or access. 

Why is the impact of Gen Z on the banking space so noteworthy and commented upon, both overall and in terms of funding this cohort as they set out as entrepreneurs?  

They represent the most potential for future growth and capturing them as customers now provides the foundation for long-term relationships to serve their financial services needs into the future. They are the generation who was born with or grew up with technology like smartphones and do not know anything else. They are not only comfortable in a digital world, they thrive in it—so providing seamless digital experiences becomes table stakes.  The concept of a side hustle is the norm for many of them, so finding ways to support their businesses leveraging mobile and digital technology will fuel growth for the community financial institutions. 

Besides lending, what are the most important solutions for this micro merchant or side hustle segment?   

Payments and payment acceptance as well as cash flow management are mission critical. A community financial institution can meet all these needs with the right partners. No one leaves home without their mobile device anymore and now an SMB always has their point of sale conveniently in their pocket to accept payments for their passion project or business.