How Banks/CUs Can Close the SMB Product Gap

Digital banks and fintechs have succeeded in luring small and medium-sized businesses by embracing a customer-centric approach, creating “reconfigured mashups” of features and functionality that combine multiple financial services. They offer value-added features like subscription management and real-time payment tools as part of their core checking accounts.

While many customers may open accounts with fintechs for convenience or to avoid fees, they still rely on traditional banks for their primary financial relationships. This trend suggests that fintechs may need to diversify their offerings to compete as full-service providers.

Banks also need to rethink their offerings to remain competitive. In this article, we examine the products, services, and reconfigured approaches banks must consider to remain viable with SMBs for the foreseeable future.

 

Betting on Bundling

A big emphasis could be placed on bundling services to provide more value to SMB clients. Those businesses already pay for third-party services such as credit monitoring, cybersecurity tools, and payroll management. Cybersecurity is a major concern; a 2023 ITRC Business Impact Report found that nearly three out of four SMBs suffered a cyberattack, data breach or both in the prior year. A breach can cost a business money and customer trust.

By integrating enhanced offerings into checking accounts, banks can create value and increase customer retention. Similarly, banks could gain more traction if they introduce services such as identity theft protection, subscription management, and cash flow forecasting.

Technology is another critical component of business development, particularly when it comes to leveraging digital transformation for seamless integration. Banks must invest in digital solutions that integrate with platforms like QuickBooks and Shopify, offer real-time payment capabilities, and provide an intuitive mobile experience.

As we noted earlier, security is a big concern for SMBs and banks must integrate robust fraud prevention tools into their business checking accounts. Key measures include real-time fraud monitoring, multi-factor authentication, AI-driven threat detection, business identity theft protection, and cybersecurity education.

First National Bank and Trust in Beloit, Wisconsin, recently revamped and upgraded its SMB checking line-up with accounts featuring value-added benefits like ransomware and cybersecurity protection and business financial wellness for owners.

“The response to our enhanced SMB checking accounts has exceeded expectations, even without a strong marketing push,” says Laura Pomerene, a senior vice president and director of product management at FNBT. “New SMB account openings have increased by over 50%, with average deposit balances up 4x. The added benefits also allowed us to introduce a fee structure that ensures a fair exchange value, leading to a 4.5x increase in fee revenue.”

Enhanced technology is also needed to reduce friction and pain points for SMB clients, says Mike Butler, CEO of Grasshopper Bank in New York.

“Customers today are demanding a lot quicker time and easier ways to transmit business,” Butler says. “They are saying they’re done with friction. With small businesses, we see a huge opportunity for leveraging technology in multiple ways.”

At Grasshopper, process improvements and technology investments are among the bank’s top priorities.

“We’re going to spend more money to address the client friction side of things,” Butler adds. “We’re focused on that.”

 

A More-Tailored Approach

A one-size-fits-all strategy no longer works in today’s competitive banking environment. A market leader at a regional bank recently noted that, “You want to have a one-size-fits-all model, but no two customers are the same. You really need to customize.”

With that in mind, banks should consider:

• Industry-Specific Accounts: Tailoring offerings to the unique needs of different industries
• Tiered Service Packages: Providing premium options with enhanced benefits.
• Modular Add-Ons: Letting businesses select features like payroll processing or tax planning.
• Dedicated Relationship Managers: Assigning banking specialists to build stronger client relationships.

Other emerging trends and opportunities that banks should consider including green banking, capitalizing on interest in sustainability by offering so-called green loans or eco-friendly checking accounts to attract environmentally conscious SMBs, and subscription pricing models, which leverages bundled services.

More banks are also evaluating partnerships with fintechs to integrate enhanced features, improve customer experience, and hasten decisioning without overhauling their systems. Outdated core systems still pose challenges, though more banks are looking at working with middleware firms and using cloud-based programs to add niche products as they leave the underlying core platform in place.

 

The Importance of Anti-Fraud Offerings

In an era of increased cyber threats and financial fraud, SMBs are prioritizing security more than ever. Business checking accounts must go beyond basic transactional capabilities to provide robust fraud prevention measures. Banks that integrate comprehensive anti-fraud solutions will not only protect their customers but also enhance trust and long-term loyalty.

Key features include real-time fraud monitoring, where automated systems detect and alert businesses about suspicious transactions in a way that can prevent fraudulent activities before they escalate. Meanwhile, enforcing, multi-factor authentication (MFA) for account logins and high-risk transactions adds an extra layer of security against unauthorized access.

Tools such as positive pay, which lets businesses pre-approve checks and ACH transactions, can significantly reduce fraud, which leveraging artificial intelligence to identify unusual patterns in account activity can proactively flag potential threats.

Banks should consider offering monitoring services that alert SMBs about potential identity theft incidents, serving as a safeguard for their financial stability. Banks can also provide customizable permissions for different users within a business, ensuring that sensitive financial operations remain secure. Finally, banks should actively educate SMBs on the best practices for fraud prevention, including phishing awareness and secure transaction protocols.

By incorporating these anti-fraud measures into business checking accounts, banks can provide SMBs with the confidence and security needed to manage their finances effectively. This commitment to security will not only differentiate banks from competitors but also foster deeper customer relationships.

 

The Road Ahead

The battle for SMB checking accounts is intensifying. For traditional banks, the key to success lies in aligning their offerings with customer expectations, investing in technology, and positioning themselves as trusted partners. Those that fail to innovate risk losing ground to fintechs, while those that embrace digital transformation, customer-centric services, and security-focused features can strengthen their market position.

The opportunity is significant; Cornerstone found that more than half of SMBs opened new checking accounts or credit cards between the start of 2022 and March 2023. But capturing and retaining SMB customers requires banks to listen, adapt, and deliver solutions that truly align with their needs. By closing the gap between what bankers think SMBs want and what they truly value, banks can transform checking accounts into a cornerstone of customer loyalty and growth. It is important, above all else, to be willing to adapt and innovate.