Small Business Preferences and Needs Serve as Guide for Banks to More Effectively Expand and Serve This Market
CHICAGO, IL–(Marketwire – March 25, 2013) – Small businesses continue to be tied heavily to branches and place high value on personalized service, according to a new BAI Research study sponsored by ARGO. While technology has dramatically changed behaviors with retail consumers, small businesses continue to be quite traditional — valuing proximity to their bank’s branches, access to quick “local” decisions on credit, and help with problem resolution.
As banks continue to be pressured to consolidate branches because of challenging retail economics and steady drops in consumer transaction volume, the study suggests that branch cutbacks might have adverse effects with small businesses if not properly planned. According to the study, financial institutions that can provide superior service to small businesses at the branch can achieve a definitive market advantage — particularly in terms of the share of wallet captured across core product sets.
“As the financial services industry seeks to attract, retain and grow their small business relationships, these findings are critical in shaping strategic priorities,” says Debbie Bianucci, president and CEO of BAI. “This research tells us that banks have the opportunity to differentiate themselves in the market through the development of creative strategies around how the branch can be used more effectively and efficiently to service this important segment within the context of cost containment initiatives.”
Among the study’s other highlights:
– Small businesses continue to interact with and transact at their branches. As the study showed — more than half of all business transactions are conducted at a branch. Small businesses also show a strong preference for in-person and live agent phone conversations with their financial institutions, which drives them to greater branch usage. And, branches continue to be the best venue to acquire new business relationships.
– Unlike retail consumers, the research found that less than 25% of small businesses surveyed use mobile banking with only 8% using mobile bill pay. This should not be surprising as only 20% of respondents indicated that they prefer online over in-person banking.
– While satisfaction with their primary bank overall came in at a strong 75 percent, the study found that small business customers generally give their bank low marks for loan and investment products they are offered. This is an interesting perception gap as additional BAI Research indicates that bank executives feel they are meeting the needs of their small business customers as it relates to loan products and services.
– Small businesses are very sensitive to fees — and value them much more than other innovations, rates or rewards programs. Many of the businesses in the study try to avoid fees unless it is a necessity or they can justify the fee on the basis of the value obtained. Just under half of them indicate fees are a main consideration when choosing a financial institution, meaning that higher fees will most likely affect their decision to switch banks.
– Perhaps not surprisingly, small businesses are traditional in their check usage, with over half of them indicating that it is their preferred payment method. Along with creating an easy-to-follow paper trail, check processing is entrenched in the customers’ accounting and payables systems. The challenge for banks is to present compelling reasons to persuade small businesses to try electronic payments.
As the preference of small businesses is to rely heavily on their branch and branch bankers, financial institutions with an integrated, branch-centric strategy can have a market advantage, at least for the next two to three years.
“Given the importance of the branch to these customer relationships,” says Todd Robertson, senior vice president of ARGO, “banks that can provide superior service at the branch-level can attract and retain these customers. Although seemingly counterintuitive based on comparisons with retail consumers, this segment’s strong attraction to the branch, personal service and paper checks, among other preferences, opens the door to grow existing customer relationships and become their primary financial institution. This can be done by facilitating the processing of large check deposits in the branch and by meeting all of the small business owner’s needs, both for deposit and loans. With the right tools and training, frontline bankers can better engage small business owners and improve service by offering them the right product at the right time.”
About the Research
The report, “Small Business Demand for Banking Services: Growth and Profitability Considerations,” provides vital insights into how banks and other financial institutions can develop strategies to attract, retain and grow small business relationships. A comprehensive survey was conducted among more than 1,500 small businesses across the U.S. to obtain detailed intelligence on a range of banking activities, behaviors, attitudes, beliefs and preferences. Respondents were high-level employees from small businesses in the following annual revenue categories: $100,000 to $1 million, $1 million to $5 million, and $5 million to $10 million. Qualitative in-depth interviews were also used to support the findings.
BAI is the financial services industry’s partner for breakthrough information and intelligence needed to innovate and stay relevant in an evolving marketplace. For more than 85 years, BAI has focused on advancing the industry by offering unbiased education and research. BAI’s offerings are as diverse as the industry, and include premier events such as BAI Retail Delivery Conference & Expo, groundbreaking research and performance metrics, professional learning and development programs, and in-depth editorial coverage through BAI Banking Strategies.
For more information, go to www.BAI.org. Follow us on Twitter @BAI_Info.
ARGO transforms business processes for banks, credit unions, lenders, and healthcare providers through software innovation. Founded in 1980, ARGO has grown into a recognized solutions partner of choice for eight of the nation’s top financial institutions. More than half of the top 50 U.S. financial institutions trust ARGO solutions for their mission-critical operations. ARGO solutions process more than 55 million transactions each day in 35,000 financial centers nationwide.
Providing best-practices solutions and exceptional support, ARGO harnesses our technology into scalable solutions for teller payments, lending, and sales and service. ARGO Lending Solutions provide integrated prospecting, sales, loan origination, and customer management capabilities for consumer, indirect, small business, and commercial loans.
For more information, visit argodata.com.
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