How community banks can win in the SMB segment

Financial institutions of all sizes are increasingly focused on the small and midsize business market — and with the right product offering and strategy in place, banks and credit unions can win big with this segment.

In fact, 85% of banks believe greater success with small businesses is critical to their overall success, according to a new report arising from a partnership effort between Apiture and Aite-Novarica Group. Credit unions are also increasingly focused on serving businesses beyond the mom-and-pop segment.

Although close to 60% of small businesses choose one of the large money-center banks, smaller financial institutions have an opportunity to reverse this trend. According to the report, 60% of decision makers indicated they would likely switch to a community bank or credit union if its products, services and customer experience were comparable to a larger bank.

Many small businesses believe that larger banks are inherently more innovative and more likely to adopt technology as soon as it is available. The report states that fewer than half of small businesses consider their current bank innovative. Despite this perception, community banks and credit unions can be quite nimble, with the ability to quickly adopt the features that business clients demand.

To shift market perception and better communicate their business banking capabilities, financial institutions should consider the following imperatives when building their business banking strategy:

Deliver a more modern banking experience: Small businesses are twice as likely to switch financial institutions if they are dissatisfied with their digital experience. One area of frustration is when digital experiences are not well integrated.

For example, business users want to avoid multi-step logins or the need to submit the same information multiple times. They value workflows aligned to business processes as well as modern, updated interfaces. To best serve small businesses, a digital banking solution should deliver a modern, connected banking experience that offers the user added convenience and reduces overall friction.

Invest in greater personalization: E-commerce websites have set the standard for personalized digital experiences for consumers, who are increasingly bringing similar expectations to business banking. They are disappointed when they encounter a one-size-fits-all experience.

In fact, the Apiture-Aite report found that 48% of small businesses state that a personalized experience is important to keeping their banking business. To better understand small business customer needs, financial institutions can embed analytics into processes like portal navigation, onboarding and product cross-sales to gather insights about users. An investment in analytics can help institutions create a more appealing digital banking platform for small businesses that value personalization.

Offer more robust capabilities: According to the report, 64% of small businesses indicate there are capability gaps in their business banking platform and express the need for more robust business capabilities that differ from what retail customers would need.

Essential functionality like cash flow management, bill-pay options and setting entitlements are table stakes, and institutions that don’t incorporate required business functionality into their platform will find it increasingly difficult to compete with bigger banks.

Consider outside partnerships: Fintech companies have applied their research and development capabilities to developing functionality to enhance business banking platforms. Not all financial institutions, however, are poised to take advantage of the functionality available today.

According to the report, 72% of small businesses wish their primary bank or credit union would work with more fintechs. An alignment with best-in-class fintechs not only improves an institution’s business banking platform, it shows a commitment to innovation that resonates with commercial customers. And while partnering directly with fintechs is an option, some digital banking providers simplify the process by integrating with multiple best-of-breed fintechs to offer the most advanced options directly to their clients.

Community and regional financial institutions have the potential to win in the small business market – and to even take business away from much larger banks – with the right strategy in place. Delivering a modern, connected and personalized experience and expanding business banking functionality, often through partnerships, are key ways to meet the needs of small businesses.

Jennifer Dimenna is SVP, product, at Apiture