To Boost Loyalty, Help Business Owners Navigate Life Stages

Thousands of small businesses launch every day, and big banks and fintechs are competing to serve them. In this environment, retaining business accounts should get heavy emphasis as part of every financial institution’s strategy. To be more distinctive in a sea of sameness, banks should consider implementing a life-stage approach to help bridge the gap between the services business owners actually want versus what banks are providing.
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Community and regional financial institutions have created strong accountholder loyalty based on service, trust and relationships for decades. It wasn’t uncommon for a long-term banker to follow accountholders through major life milestones, whether it was their child’s first savings account, applying for their first mortgage, starting their first business or building a retirement account.

But times have changed and the likelihood of a consumer being an “accountholder for life” gets more remote every day as banks and credit unions face threats from fintechs, megabanks and big tech. With this in mind, it’s important for financial institutions to reexamine their strategies for attracting and retaining accountholders. One approach that builds loyalty is implementing a life-stage marketing and product strategy based on accountholders’ relatively predictable financial needs as they transition from one life stage to the next.

There’s a distinct growth opportunity in the market for banks and credit unions to effectively serve existing business relationships and add new ones. In 2021, 5.4 million applications were filed to form a new business — the most of any year on record, according to the Economic Innovation Group. Small and medium-sized businesses (SMBs) account for 98% of all businesses in the country.

The Lifecycle Needs of Small and Medium-Sized Businesses

Many SMBs follow a similarly predictable lifecycle of financial needs, so why haven’t banks and credit unions fully adopted a life-stage marketing and product strategy for their business accountholders?

Microbusinesses and solopreneurs, for example, need easy ways to accept payments and handle invoicing and accounts receivable before they eventually grow into full-fledged small businesses with early funding and payroll needs. Midsize businesses require cash management and additional funding to continue scaling their businesses and enable a physical presence while large commercial enterprises need a full suite of treasury management and commercial borrowing capabilities as their revenues, financial models and business complexities continue to grow.

With so many new businesses forming daily, and 13% to 35% of all dollars in retail demand deposit accounts (DDAs) actually belonging to SMBs, the opportunity for banks and credit unions to bridge this gap in a timely and real way has never been greater.

Consider also that 67% of small businesses use QuickBooks, Shopify, PayPal, Square, and other top business platforms to manage their finances in conjunction with — or in place of — traditional banking services. It’s no surprise that 47% of bank and credit union executives see fintech companies as a significant threat in the coming decade.

What Fintechs Like Stripe Offer That Banks Don’t

But why are SMBs turning to fintechs to meet their near- and long-term financial needs rather than using their primary financial institution? Because retail bank accounts — the vehicles used by many SMBs in their early days — are transactional by nature and limited in scope.

Retail bank accounts can be used to pay bills and safely keep business revenue but they are rarely equipped to send invoices or receive payments without the help of a third-party fintech. When compared to fintech business platforms that enable invoicing, marketing, point-of-sale capabilities, budgeting and even assistance with taxes, traditional retail bank accounts are a poor fit for businesses accountholders even when the price is right.

And while traditional cash management and ancillary merchant services offered by banks and credit unions can fill the functionality gap, they’re often too expensive and so feature-heavy that they become a big operational lift for business owners. In addition, SMBs going this route often pay for more services than they need and end up having to seek a third-party provider to help with essential functions like budgeting and payment acceptance.

Mind the Gap:

Many small-business owners use fintechs to help simplify money-management tasks. But these platforms have shortcomings that create an opportunity for banks and credit unions to bridge the gap.

That’s why fintechs like QuickBooks, Stripe, and Shopify have become SMBs’ preferred providers. Their platforms can easily and conveniently handle the transactional needs of the business while also providing the services a small business seeks with the ability to scale services effectively as the business grows.

These platforms aren’t perfect, however. To mitigate risk for the fintech, small business payments processed through these platforms can be delayed for more than a week at a time before finally being released to the business. At a time in the business lifecycle when managing cash flow can be tricky, such delays can be painful to owners and may hamper business growth.

For banks and credit unions, this shortcoming presents an opportunity to bridge the gap. Financial institutions that take the time to create an intentional life-stage marketing strategy — one that follows a business from its early days as a retail accountholder through its emergence as a commercial entity — are uniquely positioned to succeed in an overcrowded and highly competitive industry.

Simple Steps to Capitalize on the SMB Opportunity

It’s a tall order, but there are relatively easy and concrete tasks that can get banks and credit unions started in this transformation. For example, embedding basic invoicing and receivables capabilities into digital banking through solutions like Autobooks can help accommodate SMBs and solopreneurs that manage their finances on the go, after hours or from their proverbial garage.

Implementing digital banking solutions capable of scaling with the business and utilizing a single platform that can grow with business accountholders are additional ways a financial institution can bridge this gap and get started on a life-stage strategy.

At the end of the day, it all boils down to having the ability to unlock new and more sophisticated functionality when the timing is right for the business. This is only possible if the bank or credit union takes an enterprise-wide look at how deposit, lending, investment, digital and advisory services can be aligned and bundled to close an existing service gap. Once this is done, the financial institution can create a path to help business accountholders navigate their unique financial challenges by anticipating and addressing their needs at each new life stage.

Thoughtfully closing this gap will allow banks and credit unions to provide greater support to the SMBs that are the lifeblood of communities while developing new relationships and revenue sources for the financial institution. With literally hundreds of new businesses forming daily, the time to start is now. That first-time savings accountholder could be the next entrepreneur.

For more information, subscribe to Jack Henry’s FinTalk blog or visit jackhenry.com.

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