From “Small Business: Are You Winning Or Losing?”, a Curinos webinar presented in conjunction with the Consumer Bankers Association (CBA). The webinar featured Lindsay J. Burkhalter, director of small business solutions, and Andrew Hovet, director of distribution and sales performance.
For financial institutions, winning in small business comes down to five key imperatives:
CUSTOMER SEGMENTATION: As banking becomes more digital and less location-specific, segmenting customers takes on greater importance in creating differentiating proof points to set you apart from other banking service providers. Resist the impulse to segment by revenue size; the more effective approach is figuring out what customers value and making sure your products and services are appropriately aligned. Segmentation can also include delivering personalized experiences to different roles/positions within the business.
Figure 1: Achieving Primacy Within These Segments Provides Higher Levels Of Fee Revenue, Greater Total Deposit Balances And A More Favorable Deposit Mix
Primacy generates greater fee revenue,…
… higher balances, and…
… more favorable deposit mix
PRIMACY: It’s difficult to overstate the value of holding a small business’s primary banking relationship, often defined as the operating account and one other product (i.e., lending or payments). This goes well beyond the benefits of lower deposit costs and higher-yielding loans. Fee revenue has proven to be significantly higher for the primary institution, along with a greater share of deposits overall and especially low- or no-interest deposits via the core operating account (Figure 1).
OPERATING MODEL: An effective operating model allows a bank to grow the small business segment in a way that drives true returns. In recent years, institutions have been experimenting with ways to service small businesses beyond the branch channel – along with adding digital capabilities, this effort includes use of dedicated small business bankers or inside sales teams that can provide a more scalable solution. In other words, an omni-channel approach.
Figure 2: Managing Pricing For The Small Business Segment Is Critical In Sustaining Low Cost Of Funds
Portfolio Makeup Over Time (Interest)
DEPOSIT PRICING: Low-cost deposits are one of the key reasons for banks to target small businesses. The current trend shows that the cost of new deposit acquisition has climbed sharply over the past year (Figure 2, left), but more than 75% of total interest-bearing deposits from small businesses remain under 10 bp (Figure 2, right).
Figure 3: Securing The Small Business Lending Relationship Yields Stronger, More Significant Deposit Relationships Over Time, Thereby Maximizing Value
% Customer-Level Deposits with vs without lending relationship (Business Only)
% Account-Level Deposits, Consumer vs Business
Disguised analysis for customers opening up their first account between 3/1/19 and 4/30/21. Results averaged across resulting monthly vintages. Excludes customers with >$5mm in deposit balances.
LENDING: Curinos research and data have proven that having a small-business relationship consisting of both deposits and lending creates a considerable advantage when compared to just having a deposit relationship. Small-business customers with a lending relationship have a deposit value 2.3 times that of customers that don’t (Figure 3, left). Adding to the appeal: Small-business deposit balance levels are triple that of retail customers (Figure 3, right).