Small Business Banking’s Growing Product Gap
By Dave DeFazio
For small and midsize businesses, access to efficient and value-driven services is crucial to managing their financial operations. However, a significant gap exists between what banks offer and what SMBs truly need. This gap presents a challenge and an oppurtunity for traditional financial institutions as they navigate increasing competition from digital banks and fintech companies.
The disconnect between SMBs' expectations and the services banks provide is widening, based on a report by Cornerstone Advisors, leaving room for fintech disruptors to claim a growing share of the market. In the current landscape of financial services, banks must continuously adapt to meet the needs of their customers or risk losing market share. To remain competitive, they must rethink their approach to business checking accounts and focus on delivering solutions that align with the evolving needs fo clients and prospects.
The Rise of Digital Banks
The key is understanding what those evolving needs are and how to find ways to appropriately
address them. Adding to this complexity is the emergence of digital banks and fintechs, which are reshaping and refining customer experiences and expectations.
Digital-first institutions like Chime, PayPal, and Square have captured a significant share of the consumer checking account market, with nearly 44% of new account openings in 2024, based on Cornerstone data. It’s no secret these digital banks are now gunning for the SMB market like they did consumers, taking market share from smaller community financial institutions.
More than 70% of SMBs maintain multiple deposit-related accounts, spreading their funds across different financial institutions to minimize risk while taking an a la carte approach to specialized features. Also, the line between “individual” and “business” has become blurred by the gig economy. As a result, vertical SaaS applications, such as those from Square and Shopify, have become integral to SMBs’ financial operations.
Fintech firms still, by and large, dominate in innovation, providing streamlined digital experiences and integrated financial tools that resonate with tech-savvy customers. We assert, however, that banks can still retain primary account holders if they can put together the right combination of high-tech products and high-touch service. First, they have to understand what SMBs need in both areas.
What SMBs Want
Cornerstone’s report underscores three critical expectations SMBs have for their business checking accounts:
- Enhanced Security Features: Traditional checking accounts that only provide basic deposit and withdrawal functions no longer suffice. SMBs seek bundled services such as cybersecurity protection, business identity theft prevention, data breach protection, and credit monitoring. Nearly 60% of SMBs have experienced cybersecurity threats, and more than two-thirds have faced payments fraud, highlighting the urgent need for robust security features. At the same time, a quarter of banks surveyed by Cornerstone said small-business fraud is one of their top concerns.
- Integrated Financial Tools: A Cornerstone study found that many small businesses’ accounting and payments functions are manual and labor-intensive—about 60% of them are interested in obtaining accounting and payments services from a bank. Many struggle with financial management tasks such as cash flow forecasting, invoicing, and reconciliation. They want checking accounts that integrate seamlessly with accounting platforms like QuickBooks and provide real-time payment processing capabilities. Real-time payment processing, cash flow forecasting, and seamless API integrations are also in demand.
- Flexible and Cost-Effective Pricing: Large banks have already begun leveraging tiered pricing models, offering business checking accounts with various benefits at different price points. For instance, Bank of America provides SMBs with account options that include cash flow monitoring and fraud protection at a monthly fee, with waivers available for businesses meeting specific criteria.
- Enhanced Features: Two-thirds of small businesses want better product features and capabilities from the business checking accounts. This will require banks to develop better cybersecurity protection, improved business identity theft protection, and customized cash flow management tools.
What Banks Offer – The Disconnect
Nearly three-fourths of bankers surveyed for Cornerstone's latest What's Going On in Banking report said small business deposits are a top priority. Still, many banks continue to focus on outdated offerings. Rather than prioritize value-added services and technology-driven solutions, banks emphasize fee structures, balance requirements, and transaction limits. This failure to evolve is one of the key reasons why SMBs are increasingly exploring alternatives.
The Cornerstone report reveals that while 61% of SMBs are "very satisfied" with their bank's service quality, two-thirds are open to switching banks in search of better business checking features. Interestingly, even though SMBs express satisfaction, many still feel that their banks do not offer sufficient fraud protection, cybersecurity, or digital banking capabilities.
More bankers are taking a closer look at product design to offer services that are more in line with what their clients and prospects want. At the same time, clear messaging and educational content can help build trust and drive adoption.
To better serve SMBs, b1BANKS's in Baton Rouge, Louisiana, in December hired a chief marketing officer from outside the banking industry to revamp its customer engagement strategy. The bank is in the process of conducting focus groups tto evaluate whether its current product set aligns with business owners' of evolving needs.
"We're taking a different approach to product identification and product expertise," says Jerry Vascocu, b1BANK's president. "We're having a whole lot of different conversations today than we did two years ago. It can't just be about the rate."
Where Do We Go From Here?
Traditional banks are at a crossroads. While many SMBs express satisfaction with their banking relationships, their evolving needs and expectations are pushing them toward fintechs and digital-first providers that offer seamless integrations, real-time payment capabilities, and enhanced security features. The competition is no longer just about rates and fees—it’s about delivering a banking experience that aligns with how businesses operate today.
For banks looking to maintain and grow their SMB customer base, the path forward is clear: they must modernize their offerings, rethink their approach to business banking, and embrace innovation without sacrificing the personalized service that sets them apart. In our next article, we’ll explore actionable strategies banks can use to bridge the product and service gap—from leveraging technology and partnerships to designing smarter, more flexible business checking solutions.
Dave DeFazio is EVP of Strategy & Solutions at StrategyCorps, a Nashville-based firm that provides financial institutions across the U.S. with mobile and data solutions that protect and grow customer relationships. Connect with him at dave.defazio@strategycorps.com or on LinkedIn.