Neo-Banks Attracting Small Business Clients, Research Finds

Online neo-banks are increasingly attracting the business of small companies ahead of larger, more established banks, according to new research.

Financial services research non-profit BAI reported that almost a quarter (24%) of small businesses with under $1 million in annual revenue looked to neo-banks — banks that only operate online — as their primary financial services provider. A further 16% of small businesses chose neo-banks for at least some services.

However, the survey, which analyzed the responses of 600 business owners with under $20 million in revenue, revealed that 60% of small companies still relied on large banks as their main provider.

The vast majority (87%) of respondents reported using the same financial services institution for both business and personal financial matters.

Large banks scored low on BAI’s “net promoter” scores — defined as the likelihood of a user recommending them to someone else — while regional banks were the most likely to be recommended. Community banks scored marginally better than large banks, while neo-banks ranked worst on this metric.

“Business owners told us in the survey that they most want their financial services organizations to deliver tools and options to customize solutions,” said Karl Dahlgren, managing director at BAI.

“They are also looking for a more coordinated level of service between personal and business accounts. Leaders should take notice of the services they are providing for their business customers and cater to the specific needs of business owners.”

John Waupsh, CEO of challenger bank Nerve, explained in a recent article for Banking Exchange that neo-banks have been increasingly gaining favour with customers because of their personalized approach to financial services.

Challenger banks are taking a holistic approach to community-led banking, he explained, “defining communities through shared needs and lifestyles of a specific group of banking customers”.

Without the geographical constraints typically placed on larger banking institutions, neo-banks are also better placed to expand their reach and solve the issues of unbanked groups.