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  • Writer's pictureRoy Urrico

Community Financial Institutions are Missing Out on Small Business Revenue Opportunities

New Research from Apiture and Aite-Novarica Group Details How Community FIs Must Innovate to Win Small Business Customers

By Roy Urrico

Finopotamus aims to highlight white papers, surveys and reports that provide a glimpse as to what is taking place and/or impacting credit unions and other organizations in the financial services industry.

A recent survey revealed that credit unions and community banks are missing out on significant small business revenue opportunities. The report found that less than 15% of small business firms bank mainly with a local financial institution, but 60% would favor banking with a local credit union or community bank if it offered the same capabilities and online banking experiences as those of large banks.

Wilmington, N.C. based digital banking solution provider Apiture, recently announced the findings of the company’s joint report with Aite-Novarica Group, “How Community Financial Institutions Can Make Money From Business Clients,” based primarily on the results of a Aite-Novarica Group online survey of 1,004 U.S.-based small businesses.

The report also found most small businesses do not pay for banking products and services because their financial institutions do not charge them. Twenty percent of businesses considering a small bank (with less than $10 billion in assets) to be their primary financial institution pay nothing for non-interest-bearing banking services, compared to only 7% of those banking with the “big four banks” (Bank of America, Citibank, JPMorgan Chase, and Wells Fargo). However, the report notes that small businesses would pay for the right capabilities and experiences — especially those that save them time, increase convenience, and improve overall efficiency.

Christine Barry, Aite-Novarica Group.

“Community financial institutions must change their mindsets and evolve their strategies and offerings to better align with the needs of the small business market,” said report author Christine Barry, head of banking and payments, insights and advisory, Aite-Novarica Group. “Selecting the right digital banking technology provider with an open and modern platform is central to success in this field.”

Chris Babcock, Apiture CEO.

Said Apiture CEO Chris Babcock, "Winning, retaining, and successfully servicing the small business customer segment is no easy task, but credit unions willing to consider these recommendations and make the necessary changes have much to gain. Small businesses will pay for value. Credit unions can provide this by delivering more modern, connected, and personalized experiences and more robust offerings overall. Those who can adapt can thrive.”

How Community FIs Can Better Position Themselves

Apiture’s report details four key recommendations for how community financial institutions can position themselves for success with small business customers:

· Deliver a more modern and connected banking experience: 66% of small businesses are either challenged or somewhat challenged by non-seamless banking platforms.

· Invest in analytics and higher levels of personalization: 48% of small businesses state a personalized experience is very important or required to keep their business.

· Offer more robust functionalities/capabilities: 64% of small businesses are challenged or somewhat challenged by their primary financial institution not offering the digital capabilities their business needs.

· Partner with fintech companies: Less than half (41%) of small bank customers view their banks as innovative.

Not Understanding Their Needs

“Many small businesses feel banks and credit unions do not understand their needs. This is due in part to one-size-fits-all, cookie-cutter experiences and a lack of personalization and custom advice from their financial institutions,” reads the report. “A greater investment in analytics and use cases beyond fraud prevention is needed.”

The study also recommended that by embedding analytics into portal navigation, onboarding, product bundling, and cross-selling processes, community financial institutions will better understand customer needs and improve their ability to suggest products, make recommendations, and service small businesses.

“This will position community financial institutions as partners and advisors rather than simply as transaction providers, and it will lead to greater cross-sell and revenue generation. It will also enable small banks and credit unions to create a more personalized end-user experience by delivering the insight needed to create unique experiences around capabilities and industry segments.”

Financial institutions must move in this direction, the report suggested, as 48% of small businesses state a personalized experience is very important or required to keep their business. “A failure to do so will lead to attrition and customers feeling misunderstood. Further, an ability to offer custom advice based on customer knowledge will position community financial institutions to create more profitable client relationships; 46% of small businesses paying more than $100 per month to their financial institution for fee-based services state an institution’s ability to make recommendations and provide advice is important or required to keep their business.”

Banking/Fintech Partnerships Needed

“The definition of banking continues to broaden as the needs of small businesses increase,” revealed the report. It added customers’ banking expectations are no longer simply about deposits, loans, and payments. “Most small businesses have already looked at alternatives to traditional banks and credit unions for key financial capabilities, such as cash flow management (72%), financial reporting (72%), digital invoicing (70%), and ways to collect payments and pay suppliers (69%), because most financial institutions have been slow to offer these capabilities.” Further, more than 60% of small businesses are already working with fintech companies. Among businesses generating greater than $5 million, the percentage increases to 70%. “In order to ensure future success, community financial institutions must broaden their offerings by partnering with fintech companies or risk disintermediation.”

Successfully servicing the small-business customer segment is no easy task; however, those community financial institutions willing to make the necessary changes and investments have much to gain, according to this analysis. “Central to their success is selecting the right digital banking technology provider with an open and modern platform, an application programming interface (API) -first strategy for enhanced integration with third-party platforms and personalization, and a forward-looking roadmap that aligns with customer needs and expectations as they continue to evolve. Small businesses will pay for value. Those institutions offering it need to start charging for it.”

Added Babcock, Community and regional financial institutions have much to gain from the small business market. By offering a more modern digital experience with a full range of business banking capabilities, smaller banks and credit unions can attract more small businesses and benefit from the revenue opportunities this segment offers.”


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