*This article was published in Bank Director magazine’s fourth quarter 2024 issue.
The top 25 banks in the U.S. account for 84% of primary banking relationships with small and medium-sized businesses, or SMBs, according to a 2023 Javelin Strategy & Research report. The advisory firm found that community and regional financial institutions’ share of primary SMB banking relationships is declining from 28% in 2018 to 16% in 2022. A 43% drop in four short years should be a clear signal that community financial institutions need to rethink and revitalize their SMB checking products before it’s too late.
The biggest challenge is that community financial institutions haven’t put a lot of effort or imagination into their SMB checking accounts. Not only have they left them on “set and forget,” there’s little differentiation from one community bank to another. There’s also the perception that community financial institutions can’t compete with checking products against the megabanks, big regionals or neobanks, so there’s no point in chasing these business checking accounts since that’s what drives most account openings.
New Opportunities for SMB Accounts
But these beliefs are often based more on fiction than fact. In our 2023 survey of SMB owners and leaders, conducted in partnership with Cornerstone Advisors, we found that many leaders would be happy to switch financial institutions for an account that offers the company and employees valuable features.
What’s more, there’s a common-sense way to revitalize small and medium-sized business checking products, differentiating the institution from the competition and driving organic growth.
When asked why they might consider a new banking relationship, nearly 40% of surveyed respondents indicated they wanted better business checking account product features and capabilities — even though more than 90% said they were at least somewhat satisfied with the range of features their accounts already have.
That puts nearly 50% of current SMB checking accounts in play — if a community financial institution can deliver better product features and services like cyber protection, treasury management and expanded deposit insurance, to name a few.
Delivering More to SMBs
Rethinking SMB checking starts with account pricing.
The continuing strong economy has been helping small and medium-sized businesses. SMBs can be less sensitive to interest rates than other types of customers, and need to remain nimble and competitive to maintain their customers and grow their businesses. That means these customers are especially focused on having primary SMB accounts with banks that deliver unique value.
Community financial institutions need to think about transitioning away from free SMB checking or low conditional fee checking accounts, such as maintaining a minimum balance requirement, that have no differentiated value and are available for free at other banks to a conditional fee checking account or a subscription-based flat fee checking account with differentiated value.
At a minimum, this kind of product pays for itself. But it also has a high likelihood of boosting SMB deposits, fee revenue and relationship balances. It’s also a powerful way for institutions to differentiate from the competition, whether that means other small banks in the community, megabanks, regionals or digital banks.
So, what business checking account product features and capabilities appeal to SMB owners and executives? In our survey, roughly 60% indicated they would be very interested in getting cybersecurity, business identity theft and data breach protection bundled with their business checking account. Nearly half said they’re very interested in dark web monitoring, purchase protection or extended warranties from their bank, and 44% expressed strong interest in bill negotiation services.
This isn’t a random list. According to the survey, 64% of SMBs reported experiencing cybersecurity threats over the past few years, with one in five saying it had a significant negative impact on their business. Payments fraud has been an issue as well: 68% of respondents cited it, and 18% complained about its negative impact.
Don’t be satisfied with bland SMB checking accounts that aren’t differentiated from every other bank. Come up with features and services that have real value that SMBs want.
And remember, for every SMB account, there are potential retail accounts that employees of those businesses could open. Delivering these unique SMB checking features could be a foot in the door for each of those potential retail accounts, too.
