With the consumer banking landscape becoming increasingly saturated and acquisition economics tightening, many financial institutions have turned to small businesses for their promise of stickier relationships and lower-cost deposits. And on the surface, the sector has been delivering: deeper balances, higher revenue per relationship, and the potential for product breadth. But recent performance in the UK indicates that the relationship between banks and their small business customers may be becoming more complicated.
In just three years, challenger banks have captured nearly 30% of small business market share—a stunning shift from their base of zero. The once-faithful small business customer is becoming increasingly “polyamorous,” spreading their financial relationships across multiple providers in search of optimizing product, price, and convenience. This has resulted in cross-product holdings falling more than 10% in the same three-year stretch (see chart) and in dormancy rates increasing by more than 25% .
Weighted Average Cross-Sell Across UK Deposits, Unsecured, OD and CC | Indexed
Source: eBenchmarkers Small Business | Weighted average of % of business current account holders also holding a deposit, unsecured loan, overdraft, and credit card
Why They’re Straying
Digital innovation is driving much of the behavior. Businesses are no longer as reliant on in-branch servicing and are increasingly more mobile-savvy. Their mix of moving money via mobile versus online has increased from ~30 to ~40% during the same period. That makes it easier than ever for many providers to try out new propositions—and harder than ever for the others to stand out.
The implications of this shift are significant: institutions can no longer rely solely on legacy advantages, passive retention or channel coverage. Winning in small business banking now requires sharper targeting, clearer value propositions and a more deliberate orchestration of the relationship.
This evolution raises three critical questions for institutions looking to win:
- Where is the opportunity? Which segments of the small business sector still represent untapped or underserved value?
- Who should you prioritize? Not every business is created equal—targeting the right sub-segments matters more than ever.
- How do you differentiate? Amid commoditized products and rising expectations, understanding which capabilities or experiences truly move the needle will be increasingly essential.
Small business may be banking’s new darling, but winning these relationships and keeping them in the fold will increasingly take more than just showing up.
