- On both sides of the balance sheet, small businesses represent huge potential for banks of all sizes
- To capitalize, banks need to adopt a more mature set of interlinked core competencies that include go-to-market sales, marketing and segmentation.
- Several new entrants feature digital-first loan processes, advanced cashflow, payroll and payments capabilities and integrated product sets that have broadened client acceptance.
Traditional assumptions about small business banking have become derailed as market pressures, industry forces and macro uncertainties have prompted providers to reassess their positions, create better acquisition strategies and work harder to deepen relationships.
Banks have shored up their product sets and displayed some innovation on the margins, but not enough has been done with marketing and sales to create winning go-to-market strategies. So far, the deployment of small business bankers has been well-run and disciplined, but it’s also been largely plain vanilla.
But that’s changing. Small businesses are recognized as one of the last bastions of stable low-cost deposits and strong cross-sell opportunities. And applications for small business lending products are forecasted to rebound this year, as the rate environment boosts spending and growth expectations and the demand for small loans and working capital continues to outpace supply.
As a result, new entrants and service specialists have introduced digital-first loan processes, advanced cashflow, payroll and payments capabilities, and integrated product sets that have broadened client acceptance and raised expectations. This can be seen in the growth rate of product ownership and provider relationships per business.
Still, one area where many providers, including fintechs, are falling short is in approachable and actionable business advice. As businesses expand and grow through their lifecycle, they’re confronting some challenges for the first time, and they typically look first to their bank for assistance. But there’s a gap. Many of the solutions and products don’t scale with their customers’ needs, leading to poor product fits and suboptimal outcomes, which degrades the customer relationship.
The Road to Maturity
In its small business practice, Curinos has identified several interlinked core competencies that banks need to adopt to succeed. These include go-to-market sales, marketing and segmentation, each of which can be differentiators for better acquisition and deepening.
For example, it’s not unusual for a bank’s small business marketing capabilities to be relegated to batch-and-blast emails while branch managers field sales queries or react to calls for assistance. More advanced providers, on the other hand, have identified and refined their target market and performed tests to discover what speaks to them. And the market leaders have identified industry, revenue, life-stage and attitudinal factors. They also target at the individual level, orchestrating both digital and in-person sales to drive acquisition and deepening.
Next comes pricing and product. Here again, bank capabilities vary considerably, from the standard deposit and loan products that are priced reactively to those deposit, lending and service suites that are priced dynamically.
Finally, channels, technology and data. The most advanced providers have extracted and organized core data while serving up fully functional digital onboarding and servicing capabilities, which reflects continued investment in in-branch support.
The Journey Continues
Those looking to capitalize on the market potential are focusing on maturing their capabilities in each of these areas, laying strategies for both acquisition and deepening. Many banks have recognized the need for quality over quantity and for the intelligence to build customer relations almost at the point of onboarding. Most of the market, however, is still in the developmental stages, with a few having made some advances in the past year with digital capabilities that have allowed them to focus more on the customer. But significant work remains in, among other issues, building out comprehensive product sets and creating target segments,
Still, compared to five years ago, banks have made significant progress. Increasingly they’re realizing the latent value in the small business segment, particularly as it pertains to deposits. As a result, they’ve shifted from reactive to more proactive, focusing on strategies to acquire primary small businesses and to drive depth of relationship.
