Tiffany has been with D+H for over 18 years and has spent over 25 years in the financial services industry – both in bank operations and banking technology. Her financial services background includes retail operations, training, public relations, marketing communications and product marketing.
You are hereResourcesOur ViewpointsTechnology as the Cornerstone of a Winning Small Business Strategy
Small business banking customers are among the most profitable segments for most banks. In the current environment of shrinking margins due to increased regulatory compliance burden and growing competition from traditional and non-traditional financial services providers for consumer wallets, small businesses represent a golden opportunity for community banks to gain market share. There is a high level of dissatisfaction with large banks among small businesses, meaning community banks with broad business product offerings, knowledgeable service and tools to help these customers save time and improve their bottom lines are uniquely positioned to win over this unsettled customer segment.
In short, community banks need to apply the same outside-the-box thinking and technology-driven solutions creeping competitors like Square and PayPal have applied to reach small businesses. By applying client-centric objectives for offering speed and convenience via technology to small business owners juggling both personal and business finances, community banks have a fighting chance against disruptive competition.
While mobile payments are the raison d’être for Square and PayPal’s existence, each company recognized and capitalized on traditional banks’ weaknesses during the period after the 2008 financial crash when access to capital was restricted and lending standards were tightened. Realizing that small businesses were disproportionately affected, non-traditional financial services providers mobilized to fill the gap, leveraging their nimble business models to design and apply unique loan decisioning criteria, like projected sales and cash flow. According to Aite Group, up to one-third of small businesses are at risk for shifting to non-bank solutions. The great news for community banks is that they are very well-positioned to apply this same tactic against competitors, already having core relationships and the trust of the customer. Where loans and deposits are and always have been at the heart of the business of banking, community banks can leverage technology to close the service gap for small businesses. Bank of America employed such a strategy in 2012 with the introduction of its own mobile payments dongle. At the time, it was a direct attack against Square, with the bank recognizing that in addition to offering mobile payments capabilities, it could also offer business loans, payroll services, ATMs, etc.
Keeping in mind our themes of speed and convenience, any process that can be streamlined and automated for small business customers will go a long way to building loyalty, increasing transaction volumes and ultimately offering products and services that can be monetized by the bank. For example, the ability to approve and underwrite loans more quickly is of the utmost importance for winning against disruptors. By implementing technology solutions that offer end-to-end lending capabilities and integration that can automatically transfer and pre-populate forms across core and lending platforms, banks will get a leg up on the competition.
Banks also must recognize the value of the data right at their fingertips. As a small business customer’s primary financial institution, a bank holds a wealth of information about that customer’s financial behaviors. By overlaying demographics and psychographics, the institution can implement analytic solutions that help identify customers with high propensities to use other products and services.
Finally, striking the balance between high-touch service and cost containment is something community banks struggle with for both retail and commercial customers. Recognizing the revenue potential from small businesses, banks should be less reticent about investing in a solid relationship management strategy and systems to support those efforts. Once more, technology comes to the rescue! Research suggests that small businesses are open to remote relationship management via video conferencing for most servicing needs (McKinsey & Company, 2013). One cannot make the assumption, however, that remote relationship management tactics can be employed across the board. There will always be high-touch, consultative requirements from small business customers, especially if you’re doing small business banking right by serving as a trusted partner invested in the success and growth of the customer’s business.
Small businesses represent a beacon of opportunity along the horizon for community banks. The Wall Street Journal recommends community banks to small businesses based on their ability to offer more nimble lending decisions and more personalized products and services, with more flexible terms (The Wall Street Journal, 2015). Using technology as a differentiator, the time is now for community banks to capitalize on the unique value small businesses can bring in terms of loyalty and profitability.