Woo small businesses with tailored products

Financial institutions now have the opportunity to retain and win back lost small-business customers through more tailored products and services, according to research from Aite Group.

Examples include electronic invoicing, more robust payables capabilities with tighter integration to their accounting systems, cash-flow forecasting, and document storage.

Aite Group’s report shows that many financial institutions have believed small businesses are expensive to serve, preventing them from investing heavily in small-business customers. This has also led to the current environment in which most small businesses are served through banks' consumer platforms and, for sophisticated capabilities, by nonbank providers.

The profile of small-business customers has evolved in recent years, however, to one of greater technological savvy and product sophistication. Further, their needs more closely mirror those of commercial customers than consumers, creating revenue opportunities for banks and making them more attractive customers than ever before.

Small businesses value the security their banks provide and prefer a one-stop shop to handle their financial needs. However, for financial institutions to gain small-business customers, they must switch from a primarily branch-focused strategy to one that instead highlights online and mobile capabilities. Further, they must create more effective product bundles with pointed, clearly communicated value propositions to shift from a model of giving products away to one that charges for them.

"Banks are leaving money on the table by serving small businesses from consumer platforms," says Christine Barry, research director in Wholesale Banking & Payments at Aite Group.

"With the right value proposition and messaging, small businesses will pay for products, so banks shouldn't feel products need to be given away. Banks need to better leverage technology—and partner with the providers of it—to understand industry best practices and more cost effectively serve small-business customers."

Aite Group’s research is based on a September 2013 online survey of 1,003 U.S.-based businesses generating less than $20 million in annual revenue. While this revenue range goes beyond the small-business definition used by many institutions, it represents a largely underserved segment and thus untapped revenue potential.