Small business banking customers love their branches. Before you cut back the size of your branch network, consider the adverse effect it may have on your businesses banking relationships.
Small businesses continue to be tied heavily to branches, and place high value on personalized service, according to a new BAI Research study sponsored by ARGO. While emerging technologies — particularly those in the online and mobile space — have dramatically changed the behavior of retail consumers, small businesses continue to be quite conservative, valuing proximity to their bank’s branches, access to quick “local” decisions on credit, and help with problem resolution.
Small businesses continue to interact with- and transact at their branches. More than half of all business transactions are conducted at a branch. Small businesses also show a strong preference for in-person and live agent phone conversations with their financial institutions, which drives them to greater branch usage. And for financial marketers, branches continue to be the best venue to acquire new business relationships.
Unlike retail consumers, the research found that less than 25% of small businesses surveyed use mobile banking with only 8% using mobile bill pay. This should not be surprising as only 20% of respondents indicated that they prefer online over in-person banking.
Small businesses are very sensitive to fees — and value them much more than other innovations, rates or rewards programs. Many of the businesses in the study try to avoid fees unless it is a necessity or they can justify the fee on the basis of the value obtained. Just under half of them indicate fees are a main consideration when choosing a financial institution, meaning that higher fees will most likely affect their decision to switch banks.
Perhaps not surprisingly, small businesses are traditional in their check usage, with over half of them indicating that it is their preferred payment method. Along with creating an easy-to-follow paper trail, check processing is entrenched in the customers’ accounting and payables systems. The challenge for banks is to present compelling reasons to persuade small businesses to try electronic payments.
In response to the steady decline in retail consumer branch transaction and traffic volumes, financial institutions are feeling pressure to consolidate their networks. However, the study suggests that branch cutbacks might have adverse effect on small businesses banking relationships. According to the report’s authors, financial institutions that can provide superior service to small businesses at the branch can achieve a definitive market advantage — particularly in terms of the share-of-wallet captured across core product sets.
As the preference of small businesses is to rely heavily on their branch and branch bankers, financial institutions with an integrated, branch-centric strategy can have a market advantage, at least for the next two to three years.
“Given the importance of the branch to these customer relationships,” says Todd Robertson, SVP of ARGO, “banks that can provide superior service at the branch-level can attract and retain these customers.”
“Although seemingly counterintuitive based on comparisons with retail consumers, this segment’s strong attraction to the branch, personal service and paper checks, among other preferences, opens the door to grow existing customer relationships and become their primary financial institution,” Robertson continues. “This can be done by facilitating the processing of large check deposits in the branch and by meeting all of the small business owner’s needs, both for deposit and loans.”
“With the right tools and training,” he adds, “frontline bankers can better engage small business owners and improve service by offering them the right product at the right time.”
While satisfaction with their primary bank overall came in at a strong 75%, the study found that small business customers generally give their bank low marks for loan and investment products they are offered. This is an interesting gap in perception, as further BAI Research suggests that bank executives believe they are meeting the needs of their small business customers as it relates to loan products and services.
“As the financial services industry seeks to attract, retain and grow their small business relationships, these findings are critical in shaping their strategic priorities,” says Debbie Bianucci, President/CEO of BAI. “This research tells us that banks have the opportunity to differentiate themselves in the market through the development of creative strategies around how branches can be used more effectively and efficiently to service this important segment.”
About the Research
The report, “Small Business Demand for Banking Services: Growth and Profitability Considerations,” provides vital insights into how banks and other financial institutions can develop strategies to attract, retain and grow small business relationships. A comprehensive survey was conducted among more than 1,500 small businesses across the U.S. to obtain detailed intelligence on a range of banking activities, behaviors, attitudes, beliefs and preferences. Respondents were high-level employees from small businesses in the following annual revenue categories: $100,000 to $1 million, $1 million to $5 million, and $5 million to $10 million. Qualitative in-depth interviews were also used to support the findings.