- Small businesses have traditionally been a reliable source for low-cost deposits, but that’s changing, which means deposits alone aren’t a durable strategy for banks—both sides of the balance sheet need to be managed in tandem.
- In addition, banks serving small businesses will increasingly need to advance their digital experience beyond application and funding to include immediate preapproved product offers, or be left behind by digital disruptors that do.
- To win, banks will need to adopt an effective lending engine, a superior digital experience, synergy across channels and an evolving value propositions, with products and services to match.
As we move into 2026, the mandate in banking is clear: grow relationships, improve profitability and defend core deposit franchises in an increasingly competitive market. Nowhere is this tension, and opportunity, more evident than in small business banking where three forces are converging to reshape the competitive landscape.
First, the industry is focusing more fiercely than ever on the segment. Second, product sophistication is accelerating, driven in large measure by fintechs, which can deliver faster credit decisions and streamlined onboarding—both of which are highly appealing to fast-moving growing businesses. These two forces are converging to create the third: deposit cost and scarcity, which are stoking intense competition, heightened churn and a cost of acquisition that continues to spiral upward. For banks looking to optimize deposits, spreads and retention, the pressure is on (Figure 1).
Figure 1: Focus on Business Segments is Driving Competition, Innovation
Capturing new relationships…deepening to full relationships…priced with discipline is the key to delivering profitable growth.
One of the reasons small businesses have traditionally been so attractive is that they hold half their deposits in non-interest-bearing checking, mostly to fund operating expenses. As a result, rates that banks pay on their new money and their portfolio rates have been favorable compared with other segments.
But with intensified competition, that’s changing. In only a two-year stretch, 2023-25, portfolio rates relative to Fed Funds rates have more than tripled as the proportion of non-interest-bearing balances has shrunk by 20% (Figure 2).
Figure 2: Small Business Deposit Portfolio Mix 1/23 to 12/25
Source: Curinos Small Business Analyzer
Figure 3: Customer-Level Deposits With vs. Without Lending Relationship
Sources: Curinos Analysis | Curinos 2023 US Business Banking Survey (N = 2,640)
Notes: Disguised analysis for customers opening their first account between 3/1/19 and 4/30/21; Results averaged across resulting monthly vintages. Excludes customers with >$5mm in deposit balances.
In addition, Curinos’ LendersBenchmark Analyzer for Small Business Lending reveals that institutions that strengthen their lending engine see tangible returns in originations, spreads, portfolio utilization and credit quality. Top-performing lenders have grown originations by 7% while improving spread by almost 50 bp. At the same time, they’ve seen an increase in utilization of 3% even as delinquencies have fallen by 10 bp (Figure 4). An efficient credit engine not only expands volume and enhances profitability, it also reduces risk. The small business growth equation is not deposits versus lending, it’s deposits synergy with lending.
Figure 4: Client Performance Impact
Financial Gains as the Result of Reshaping the SB Lending Engine
+7%
Annual
Originations
Growth Rate
+3.12%
Increase in Utilization
49 bps
Avg. Spread Improvement
-10 bps
Change in Delinquency Rate
Source: Curinos LendersBenchmark Analyzer for Business
Results compare rate at launch vs 12 months post-launch for top 50% performers
Digital Opportunity Reaches Beyond Onboarding
Digital transformation in small business banking has advanced meaningfully. Today, 85% of national, super-regional and fintech institutions targeting small businesses offer end-to-end digital application and onboarding experiences, according to Curinos’ Digital Banking Analyzer. But many banks’ frictionless digital experiences end there. Only 10% of them deliver immediate preapproved product offers following onboarding (Figure 5). That gap represents enormous white space. While a significant number of them now offer digitized acquisition, few have fully digitized expanding the relationship. Banks may be winning the race to onboard, but they’re missing the opportunity when it comes to deepening.
Figure 5: Investment in the Digital Experience
Source: Digital Banking Analyzer; *National, Super-Regional and Fintech institutions
Where Traditional Banks Still Have an Edge
Against this backdrop, where can traditional banks compete—and win? Four areas stand out (Figure 6).
- An effective lending engine. Speed, clarity and consistency matter when decisioning credit. Banks that shorten cycle times, align risk and pricing and improve decision efficiency create both financial and relationship advantage. The result is smarter capital deployment, more robust spreads and better credit outcomes.
- A superior digital experience. Digital onboarding is foundational. Fintechs have raised the bar to be sure, and banks need to meet the expectations they’ve set, or even exceed them. But true differentiation comes from embedded insights and proactive engagement that integrate lending, account opening and payments solutions into a seamless client experience.
- Synergy across channels. Branch networks and bankers remain powerful assets, as long as they’re aligned to drive growth of a business rather than functioning in isolation. Equally important is connecting the small business relationship with the owner’s personal and wealth management needs. Few fintechs can bridge that gap. When a business owner’s commercial, personal and advisory relationships are integrated, the probability of retention improves as the bank’s share of wallet expands.
- Evolving value propositions, and products to match. As businesses grow, their needs evolve—payments become more complex, treasury needs increase and advisory requirements become more pressing. Winning banks anticipate these transitions. They know when to expand credit capacity, introduce treasury expertise and connect the client to wealth advisory resources. Their value propositions and strategies embrace differentiated product, go beyond product to answer “why us,” secure the relationship and then broaden it.
Figure 6: Four Keys to Winning with Small Business
Anticipate Their Needs, Grow with Them
The small business segment remains valuable, but it’s becoming more demanding. To meet the moment and combat onslaughts from disruptors, banks need to:
- Manage both sides of the balance sheet rather than focusing on traditionally low-cost deposits.
- Make the digital acquisition journey as frictionless as possible and expand it beyond onboarding.
- Adopt a sales model for each SB segment and skilled staff to address client needs, and a focus on both business and personal.
- Drive resources, investments and intentional product differentiation based on segment clarity.
The institutions that enhance and align their lending engine, digital experience and relationship strategy will be the ones that capture the value of this segment. They’ll realize growth that is well-rounded, profitable and sustainable. Those that don’t will find the segment increasingly unforgiving.
The pressure is real. So is the opportunity.
Decision & Action Takeaways
Decision to be Made | How to grow and defend small business relationships by managing both sides of the balance sheet, building a frictionless digital experience that extends beyond onboarding, and meeting the expanding commercial and personal needs of a growing business and its owner. |
How It Affects Total Customer Value | Small businesses that look to their bank for lending bring 2.3x the deposits of those that don’t—making the lending and deposit relationship inseparable. Failing to meet both needs creates a vulnerability that fintechs, with faster credit decisions and streamlined digital experiences, are increasingly exploiting. The cost of inaction is increased customer acquisition costs, shrinking credit spreads and missed opportunities to deepen client relationships. |
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