Stop Treating All Small Businesses Alike

For years, financial institutions have discussed the opportunity to serve small- to medium-sized businesses (SMBs) better, but the industry has made limited progress. We knew progress would require aligning our solutions with their needs, but we never had the tools we needed until now. Technology has changed the game, enabling banks to leverage data to understand SMB needs and deliver the solutions that meet these needs and provide the experience they expect. It’s no longer a theoretical discussion — it’s real.

And that reality arrived none too soon. According to the results of McKinsey & Co.’s 2023 small to medium-sized enterprises (SMEs) survey, 37% of SMEs are willing to move their deposits to another financial institution, which puts more than $700 billion in play. This is the time for banks to change the way they serve SMBs or be left behind.

A Segmented Approach
Traditionally, banks have taken a one-size-fits-all approach with SMBs, giving them all the same digital offerings. Now, they can adopt a more proactive approach, like using data to create segments and connect products and messaging to each particular segment as well as delivering digital capabilities that align with each segment’s needs. They can select platforms that allow them to draw from multiple sources to create those solutions.

The key to the success of this new approach is understanding how to use the data. What is the data revealing about SMB account holders? What industry are they in, what do their transaction behaviors look like and what are their average account balances?

For example, a business with a lot of checks in circulation is more susceptible to fraud and could benefit from positive pay. However, most business owners don’t know what positive pay is. If banks can change the vocabulary so the business owner understands what this offering is and why they would benefit from it, they’re more likely to buy it. A financial institution could call it “check fraud protection” — that they understand.

Instead of pushing products regardless of whether a business needs them, the message becomes specific: your institution has what they need and can embed that inside an experience that makes sense to that business.

Data, Data, Data
In the positive pay example, inspecting transaction data could identify the businesses with high check usage. All financial institutions have this transaction data, but most don’t use it.

My wife and daughter recently started a small business, and the incoming revenue has doubled every quarter for the past two years. Their bank has the transaction data that shows this quarterly deposit growth and could have identified their business as a loan or credit card opportunity, but never contacted them.

You know which company did offer them a loan? Square. Square looked at the data and could see the business was growing. The bank could have easily reached the same conclusion, but it never put two and two together.

Not only has their bank missed out on a revenue-generating loan, it ceded its position as the primary financial institution. If banks don’t leverage data to identify opportunities to offer their SMB customers as many relevant solutions as they can, they run the risk of their SMB customers becoming bank agnostic.

Think of the SMB relationship as concentric circles. Community banks can be at the center of their relationships, but they need to understand what happens beyond traditional banking. Imagine if my wife’s bank had looked at all her financial data, had seen potentially challenging periods for the business and offered suggestions on how to course correct? If a financial institution can bring solutions to all of those issues, the relationship goes from a transactional to a much-stickier full relationship.

Institutions that can offer solutions that make sense to each business will create differentiation in the market. Given that much of the SMB market is referral based, banks that align solutions with high-value business segments can ultimately compete and win. Serving SMBs better is no longer something to imagine. It’s something to do.