Research Part 3: SMB Banking Relationship Paradoxes Are Opportunities for Community FIs

 

Editor’s Note:

This is the third in a monthly series exploring market research we commissioned with financial services firm Cornerstone Advisors to get a state of market view through the eyes of SMB leaders across the country.

Our main goal was to understand their challenges now and how community financial institutions could best compete for their business moving forward.

This subject has become even more timely as the consumer deposit and spending environment is changing for consumers, which has a direct effect on SMBs revenue and loans. Community banks and credit unions have been the traditional leaders working with SMBs. And that can remain the rule – if community FIs can deliver the kind of service and products SMBs are looking for.

This third section shows that community FIs have an opportunity to deliver an SMB checking product that can provide the kind of features that will help them stand out in their respective markets against all competition, including the megabanks and big regionals.

Despite SMBs’ relatively high level of satisfaction with their checking account provider and the account itself, three seemingly contradictory facts emerged from the survey:

  • Many SMBs are open to new banking relationships. Overall, two-thirds of SMBs are somewhat or very likely to look for new banking relationships in the next 12 months. Among SMBs with annual revenue between $10 million and $100 million, that percentage rises to 77%.
  • Many SMBs are looking for better business checking account features. When asked why they might consider a new banking relationship, nearly 4 in 10 indicated they wanted to get better business checking account product features and capabilities—even though more than 9 in 10 said they were at least somewhat satisfied with the range of features they already have.
  • SMBs are increasingly open to borrowing from sources other than their primary checking account provider. Roughly 8 in 10 SMBs will consider their primary business checking account provider for their borrowing needs over the next two years—no surprise there. But 52% will consider another bank or credit union for loans—up from 42% in a survey Cornerstone Advisors conducted in early 2020. 

 

Understanding SMB Satisfaction Levels

What distinguishes an SMB that is “very satisfied” versus one that is just “somewhat satisfied”? The survey results suggest that there are nine factors that influence SMBs’ ratings.

A significantly higher percentage of SMBs that are “very satisfied” with their primary checking account provider believe that those institutions do a better job of making it easier for SMBs to manage their finances (and feel more prepared to do so), provide products and services that meet their preferences and needs, protect their assets and data, and protect them from fraudulent activity and cyberthreats.

Table D

Source: Cornerstone Advisors survey of 1,009 small to medium-size business owners and executives, March 2023

Reinventing Business Checking Accounts

What do SMBs mean when they say they want “better business checking account product features and capabilities?" We think they want value-added services bundled into their checking accounts. 

Roughly 6 in 10 said they would be very interested in getting cybersecurity, business identity theft and data breach protection bundled with their business checking account. 

Nearly half said they’re very interested in getting warranties and dark web monitoring from their bank, and 44% expressed strong interest in bill negotiation services.

 

Figure 10

Source: Cornerstone Advisors survey of 1,009 small to medium-size business owners and executives, March 2023

This isn’t a random list of services. According to the survey, 64% of SMBs have experienced cybersecurity threats over the past few years, with 1 in 5 saying it's had a significant negative impact on their business. Payments fraud has been an issue as well, cited by 68% of respondents, with 18% complaining about its negative impact.

 

SMBs Are Willing to Pay for Value-Added Services

As a result, more than 6 in 10 SMBs currently get—and pay for—cybersecurity, business identity theft and data breach protection services as well as credit monitoring services. And although just roughly 4 in 10 SMBs currently use bill negotiation and dark web monitoring services, another 4 in 10 expressed interest in using those services

The challenge for community-based financial institutions isn’t getting SMBs to pay for value-added services, it’s getting SMBs to pay them for obtaining the services.

In addition to having services bundled into their business checking accounts, 58% of SMBs would like to offer their employees the opportunity to have access to a checking account with value-added features like cell phone damage protection, identity theft protection, bill negotiation services, fuel savings and a health savings card.


New Banker Deposit Survey Results!

 

Figure 12

Source: Cornerstone Advisors survey of 1,009 small to medium-size business owners and executives, March 2023

Editor’s Post Script: The goal of this survey was to get a better understanding of the thinking behind how SMB leaders are banking today; what motivates their choices; and how to lure them away from their current primary banking relationships. 

To learn more about the results of the survey, download the results, or contact dave.defazio@strategycorps.com.

 

Next in our series, we’ll reveal the opportunities to reinvent SMB checking accounts to regain their relevance with SMBs and drive non-interest income as well as primacy.