The Battle for the Small Business Customer

Increasingly, small and medium-sized businesses (SMBs) are looking for digital banking and financial solutions to address specific needs and provide the experience they expect.

The preference for digital has allowed fintechs and big tech firms to compete with financial institutions for these relationships. While the broadened competitive landscape creates new challenges, this migration to digital channels creates new opportunities for banks of all sizes to compete and win in the SMB market. But first, banks need to think differently and redefine what’s possible.

Many banks have a one-size-fits-all approach to SMB banking. This approach is based on the shaky premise that what SMBs need are consumer banking products with slight variations. This leaves SMBs with two choices: Leverage the bank’s existing online retail banking products – an option that is easy to understand and use, but lacks the specific financial solutions they need – or use the bank’s more-complex digital commercial banking products. The impersonal experience most SMBs experience as a result of this approach can leave them feeling unsatisfied and underappreciated. But banks can capitalize on this underserved market by combining modern technology with a targeted segmentation strategy.

Businesses with fewer than 20 employees make up over 98% of American businesses, according to the U.S. Small Business Administration’s 2021 Small Business Profile. About half of SMBs feel their primary financial institution doesn’t understand their needs, according to Aite’s 2021 study, “Delivering the Experience Small Businesses Expect.”

Banks need to deliver more tailored solutions and experiences to differentiate themselves from competitors. To start, they should ask and honestly answer some key questions:

• In what target markets (size, industry and location) can we compete and win?
• What are the needs of the businesses in these target markets, beyond traditional banking?
• What partners will we need to meet the needs of these account holders?

The answers start with the bank’s business strategy – not its technology strategy. Banks need to think in terms of outcomes first before creating the technology strategy that will help them achieve those outcomes.

SMBs Want Experiences Built for Them
User experience matters to SMBs; winning their business depends on providing fast, user-friendly, tailored experiences. They increasingly expect a single view of both their business and personal relationships with the bank.

But using nonbank firms has increased complexity for these SMBs. Banks have an opportunity to aggregate these relationships and provide a comprehensive set of solutions through fintech partnerships. They can tailor digital experiences that address the needs of each of their SMB by integrating their banking solutions with their fintech partner solutions.

Taking a customer-centric approach that pairs account capabilities to business needs allows banks to make their SMB customers feel appreciated, increasing loyalty. For example, a dentist practice may need products and services focused on managing cash flow, accessing credit and wealth management options. Gig economy participants can be focused on payments and nontraditional services through the fintech marketplace, such as bookkeeping or time tracking and scheduling.

The current leading digital services providers enjoy strong customer loyalty because they’ve created positive experiences and value for each customer. SMBs are leaving banks – or are deeply considering switching banks – because of these institutions’ inability to provide what they want: banking experiences and solutions that help them run their businesses more effectively.

SMBs need a compelling business case when selecting a bank; the bank must convince these businesses that it’s prepared to do what’s needed to meet their growing and evolving financial requirements. Banks that fail to focus on broadening partnerships and delivering a wider range of financial solutions through an extensible digital platform may have difficulty retaining existing business customers or attracting future new ones. As a result, these institutions may also find themselves with a higher-than-average percentage of less-valuable customers.

Conversely, those banks that offer solutions SMBs need, in an experience they expect, will emerge as leaders in the space. Banks need to understand the targeted segments where they can compete and win – and then deliver with a fast, easy, relevant, end-to-end digital experience. We’ve written an e-book, “The Battle for the Small Business Customer,” that offers an in-depth look at the factors shaping SMB banking today and ways banks can deliver a compelling business case.

Banks that can do this will be able to grow market share in the SMB market; banks that don’t can expect shrinking revenue and profitability. The time is now to redefine what’s possible in the SMB market.