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Seven strategies for FIs to grow SMB relationships

fi buildings

Small and medium-sized businesses (SMBs) have a lot on their plates these days. Navigating the COVID-19 pandemic, keeping up with their larger, better-equipped competitors and maintaining exceptional customer service are enough to create a full workload. The last thing these busy entrepreneurs need are hassles and inefficiencies with their banking relationships.

Unfortunately, that lack of convenience and integration is all too often the case. Recent research by the Aite Group shows as many as one in three SMBs are unhappy with their current banking relationship. At the same time, 60 percent of SMBs now look to fintechs for at least one service; most wish more financial institutions (FIs) would partner with fintechs as a way to speed innovation.

A wakeup call for financial institutions

For banks and credit unions, it’s a wakeup call. This often underserved market segment of businesses up to $20 million in annual revenue now has more options for financial services. And, thanks to smooth experiences in other parts of their operations, SMBs also have greater expectations when it comes to ease of use, information access and overall functionality.

There’s also good news for FIs. Aite Group estimates 85 percent of banks are putting more attention on the SMBs channel, in part because:

  • SMBs are more willing to pay for important capabilities, such as those that speed collections, improve cash forecasting, provide a consolidated picture of business finances or integrate bank data with business systems.
  • There’s a healthy innovation pipeline to tap, with fintechs and trusted providers launching cutting-edge tools that banks can leverage to round out their SMB portfolios.
  • There are easy opportunities for banks to deepen SMB relationships, cross-sell new products and position themselves as advisors, which demonstrate value far beyond a single transaction and boost recurring revenues.

FIs that succeed most often approach the SMB market as an advisor and partner, rather than a simple transaction processor. They also look at banking services broadly. SMBs view banking holistically. It covers more than just borrowing money, transferring funds or making deposits. Their needs (and an FI’s revenue potential) can encompass everything that happens before and after a payment, from timely issuance of invoices to ease of reconciliation and to working capital management.

This updated mindset is crucial to demonstrating value and winning long-term, profitable relationships with SMB customers.

Seven saboteurs that can sink SMB relationships

As your FI moves forward, watch out for these seven behaviors that can sabotage success in the SMB market:

  1. Neglecting the user experience
  2. Falling behind on innovation
  3. Limited mobile capabilities
  4. Overlooking customer pains
  5. Missing sales opportunities
  6. Giving away services
  7. Evolving too slowly

Below, we’ve got practical guidance to avoid these seven saboteurs and position your bank or credit union for strong and sustainable growth with SMBs.

business owner looking at finances

Solution 1: Make it easy

Neglecting user experience is the first saboteur for SMB banking relationships. Ease of use is now one of the most sought-after attributes of business banking relationships. In Aite Group’s recent research, 89 percent of SMBs ranked ease of use as very important—ahead of or on par with fees and branch locations for the first time.

It’s no longer enough for FIs to incrementally improve their SMB services. As customers experience what fintechs, retailers and providers in other industries offer, it raises the bar for all.

Ideally, today’s SMB banking solutions should be:

  • User-friendly from day one, without the need for extensive training
  • Built with a strong online user experience that includes self-service capabilities
  • Flexible enough to deliver information when and where customers want it

One of the most common pitfalls for FIs is using a consumer banking platform as the foundation of the SMB experience, rather than developing functionality that speaks directly to SMB needs. This strategy limits the available features. It also hampers a bank’s ability to mature the SMB relationship to a full commercial platform as the customer’s business grows.

Account opening is another opportunity area. Onboarding should be easy and efficient. Millennial customers and younger decision-makers, in particular, look for online and self-service capabilities that give them control over the experience.

Solution 2: Keep current

Falling behind on innovation is the second SMB saboteur for banks and credit unions. Aite Group research shows all FIs struggle to be perceived as industry-leading. Only 56 percent of SMBs view large banks as innovative; among community banks, the numbers drop even lower, with only 32 percent willing to label their community bank an innovator.

Fintechs, on the other hand, are far more likely to be recognized for advanced capabilities and sleek user experiences. Yet SMBs would rather access these innovations through their banks than directly from fintechs, according to Aite Group. They prefer the security that banks and credit unions offer and want a comprehensive “one stop shop” experience.

The takeaway for FIs? Innovation is a struggle for the entire industry, but it’s not necessarily about a bank’s IT budget. It’s far more important to deliver value to SMB customers. There are ways to demonstrate innovation, even with older technologies.

Fintech partnerships also accelerate launch timeframes and are far more common today than just a few years ago. The right alliances and strategy can optimize opportunities with SMB customers.

Solution 3: Be device-friendly

Limited mobile capabilities are the third potential saboteur that can sink SMB banking relationships. A key insight for banks from the Aite Group research is how SMB customers clearly differ from their larger counterparts when it comes to device usage. At these smaller, entrepreneurial organizations, financial decision-makers wear many hats. Their time and productivity are potentially their most critical asset in a given day, so they want their banking activities and access to key financial metrics available on whatever screen they’re currently using. That means a user experience and technology that works fluidly across smartphones, tablets and desktop computers.

Banks that offer a business-centric mobile experience (rather than one built on a consumer platform) are better prepared to meet SMB demands, such as the need for different levels of employee permissions within the mobile solution. A strong mobile experience also drives the perception of innovation, especially during the sales cycle; SMBs typically perceive banks with a lackluster mobile offering as less tech savvy, according to Aite Group research.

The most common SMB mobile activities include:

  • Checking balances
  • Paying bills
  • Approving payments
  • Monitoring alerts

Remote Deposit Capture (RDC) solutions are one of the fastest growing mobile capabilities for SMBs. Banks with robust applications can help their customers improve efficiency and speed cash flow.

Expense management is another opportunity area to provide “on the go” convenience for SMBs to upload and tag receipts. Alerts and notifications are a final focus area that’s important to SMB customers.

Solution 4: Show relevance

Saboteur number four hits FIs who overlook the specific pain points that occur with SMB customers. These are distinct and real challenges—yet too often, banks and credit unions provide solutions better suited for consumers or large corporate enterprises. Both fail to address an SMB’s true needs, which risks customer attrition and limits bank revenue. Approximately eight percent of SMBs actually switch banks each year, according to Aite Group.

“Banks don’t understand my needs,” is a common SMB perception, according to Aite Group research. While this may not be reality, FIs need to work harder to demonstrate their relevance to SMB customers. Many perceive fintechs as offering better tools. Sixty percent of SMBs use (and pay for) at least one fintech service outside their bank, according to Aite Group.

According to research, the top challenges for SMBs are:

  • Collections and accounts receivable
  • Forecasting cash flow
  • Obtaining a consolidated view of business finances
  • Integrating bank data into their primary business system
  • Maintaining funds to cover business needs

Banks that can help SMBs get a current, accurate picture of their business finances can leapfrog their competition. Most SMBs resort to manual processes such as time-consuming spreadsheets to obtain necessary information. More than half use QuickBooks and appreciate bank integration with this platform.

Solution 5: Collaborate internally

Without strong cross-functional collaboration, FIs struggle with saboteur number five, missing sales opportunities.

Only half of SMBs view their FI as a true partner, according to Aite Group. Most see their bank or credit union as simply a place to deposit funds and borrow money. That leaves a significant amount of opportunities—and potential revenue—that FIs are overlooking.

Most SMB banking relationships begin with a need for credit. However, many banks fail to expand services beyond that single loan or credit line. Similarly, many SMBs look outside their primary deposit bank when in need of credit. Aite Group research shows as many as 60 percent of SMB borrowers don’t use their primary deposit bank for loans.

FIs that can break down internal silos between deposit and credit functions can improve cross-sell and upsell opportunities. Deepening SMB relationships locks in recurring revenue and better positions the bank as a partner through the life of the growing business.

Solution 6: Price on value

Saboteur number six is the persistent mindset that FIs must give away SMB services. Nothing could be further from the truth, according to Aite Group research, as long as bank services demonstrate value.

In fact, SMBs readily spend on financial services with fintechs, who they believe offer stronger tools than many banks. The key is finding the sweet spot of pricing, and offering services with fixed costs, which help SMBs manage their budgets.

The number one reason SMBs aren’t paying? According to Aite Group, it’s simply because their banks aren’t charging them. One in three pay $10 or less per month across all their SMB banks.

SMBs will pay for the right services. Top requests include:

  • Nearly 60 percent would pay for services that help them manage business finances
  • 51 percent would pay for tools that accelerate collection of receivables

Solution 7: Listen constantly

The final SMB saboteur that FIs should avoid is evolving too slowly. The SMB market is moving quickly and many banks, fintechs and solution providers are targeting growth in this profitable channel. With limited budgets, competing priorities and the fast pace of technological advances, it can be difficult for banks to keep pace—especially with the inherent agility that fintechs demonstrate.

One solution for banks and credit unions is to operate strategically. Making the right decisions and market moves is critical. Listening to SMB customers can provide the necessary direction and strengthen customer relationships.

SMBs, according to Aite Group, want their voices to be heard; they are eager to provide input, but feel banks—especially small and mid-sized FIs—are not taking the time to listen to their needs.

How banks communicate with SMB customers also matters. Younger decision-makers like Millennials, for example, are interested in chat functionality and virtual meeting technology. Banks that open new communication channels and prioritize customer input will have a richer pipeline of knowledge to launch their product development plans.

Avoid the saboteurs by prioritizing SMB needs

While these seven saboteurs can threaten an FI’s success with SMBs, there’s also ample opportunity to attract and retain valuable SMB customers.

Key to SMB success are:

  • A strategy that prioritizes SMB needs and ease of use
  • Partnerships that help accelerate the innovation cycle
  • Strong internal communication and value pricing on services
  • Active input from core SMB customers

Banks and credit unions that make SMB needs a priority will be better positioned to thrive in this important market space.

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