Attract small businesses with a holistic banking experience

Business banking customers with increasing deposits and loans appear to be ideal targets for financial services organizations. But these businesses – what BAI calls the “Dual Opportunity” segment – are not fully leveraged by banks and credit unions.

The failure to capture what appears to be an enviable target is one of the key findings of the recently published BAI Banking Outlook report on Business Banking Insights. Dual opportunity companies accounted for 27% of all companies in the BAI survey. The report is based on a BAI survey in February of 600 U.S. businesses with annual sales of $20 million or less, which BAI defines as small businesses.

Unfortunately for banks, the potentially lucrative dual opportunity segment, with its need for additional loans, is also the segment most likely to seek a new banking relationship. Half of them said they expected to change their primary relationship with financial services over the next two years. Fintechs and neo-banks are eager to welcome companies looking for credit.

The other segments of the new BAI report are wealthy deposits (34% of survey respondents), who have increasing deposits and decreasing loans; Challenge to growth (32%), with same or falling deposits and same or falling loans; and Concerned Lending (7%), with deposits down and loans up.

Regardless of the segment, the challenge for financial services organizations is to provide corporate customers with a compelling reason to consolidate deposits, take out loans, and utilize cash management and merchant services with their primary financial institution.

Most business owners don’t see the connection between giving their bank more business in exchange for more value. Only 24% of small business owners surveyed strongly agree with the statement, “My primary business financial services provider clearly gives me more value, the more business I give them.”

Banks do not take a holistic approach to their business customers. By failing to connect the dots, they fail to put professional clients at the center of the relationship.

And there is another disconnect discovered by the BAI investigation. Surprisingly, nearly nine in 10 business owners say their personal account is with the same bank as their business account. But banks often don’t recognize this relationship. It’s not necessarily because personal bankers don’t talk to investment bankers.

This is mainly because banks often do not recognize this relationship from a data perspective. Data is siled and accounts are handled separately. Much of the information, especially at the small business level, is automated. Bank data systems need to communicate with each other before customer information can be thoroughly analyzed and then optimized. But it’s a tall order.

Financial services organizations must somehow integrate the data and look at the relationship more holistically. The next step is to persuade corporate clients that they would receive additional benefits by concentrating their banking, both business and personal, with their primary institution.

For example, professional customers can benefit from certain advantages of the personal account if they have established or maintained their business relationship with the bank. The reverse could also be true by pricing and pricing commercial products and services specifically.

Steps like these are essential to prevent the dual opportunity segment, or any of the other three business customer segments, from seeking a relationship with another financial services organization.

What do business customers want? According to the BAI survey, the lowest fees and the best rates are the two main considerations in choosing a primary financial services organization. But fees and rates are standardized features that hardly differentiate one bank from another.

The quality of the customer experience is a more important reason for choosing or staying with a bank. According to our survey, business owners say their top customer experience priority is a financial services organization that offers the tools and options to personalize their banking experience.

Tools can range from products to digital services, including the ability to open new accounts online. The second customer experience priority is transforming branches to create a better in-person experience. Branches would be staffed with experts to help business owners achieve their financial goals.

Although many financial services organizations tout their ability to open new accounts online, gaps remain. Too often, business and retail customers have yet to complete the new account opening process they started online at the branch. Business owners like the reassurance of having a properly staffed branch in case they run into a problem online.

While some banks and credit unions have yet to streamline or even offer new online account opening services, fintechs have eagerly filled this gap. These new entrants into the banking space have refined the online account opening process by borrowing proven techniques and technologies that they have studied in other industries.

Financial services organizations don’t do enough work to understand the needs of their business customers, leading to attrition on fees and rates.

To attract and retain businesses, organizations, whether banks, neo-banks, credit unions or fintech, must break down silos and integrate all their data. Data points can be deployed in decision algorithms that provide business customers with efficient and targeted products leading to a more satisfying holistic customer experience.

Karl Dahlgren is CEO of BAI.