The banking industry has sadly lost its small business banking mojo in the past five years. Historically, community banks and national players alike have viewed small business as a “golden goose” for the future – a segment ripe for revenue growth and the expansion of innovative products and services. Then a Great Recession stopped this energy in its tracks.
Today, the state of small business banking is not impressive:
- Small business loans outstanding are lower than they were in 2007 before the crisis began. Alternative finance players using new technology and integration with merchant processing systems are innovating while bankers sit on their thumbs.
- Bankers now take small business deposits for granted. In our Fed-distorted rate environment, the financial value of core business deposits has waned in the short term, but won’t this relationship liquidity be important for a future ride up the yield curve?
- Web and mobile technology investment and innovation have lagged the retail market. With the exception of a few powerhouse leaders like Wells Fargo & Co., bankers have wasted an opportunity to help small business owners manage their finances, supply chain and risk management via mobile technology. The outsource vendor market has been equally sorry in the energy it has expended on this opportunity.
- Banks continue to make small business a political issue regarding “where it should report” between Retail and Commercial versus worrying about the competitiveness of the bank’s small business offering.
Imagine if innovative leaders such as Jeff Bezos from Amazon or Howard Schultz from Starbucks were running the small business show at your bank. Would they be accepting of such mediocre innovation and execution?
Looking forward, bankers should spend time in 2014 revitalizing their small business strategies and reinventing the role of the business banker. Once and for all, it’s time to smash the framework of these individuals as “lenders” and morph these positions into outbound, technology-driven experts on the management of small business.
For serious players, this means the next generation of small business bankers will be experts on mobile and payments technologies. They will be outbound “Genius Bars” for small business owners and controllers. As opposed to merely having credit skills, they will be able to provide gritty knowledge regarding cash management services, QuickBooks integration, employee benefit plans and business insurance products. This knowledge will be backed by formal training and a rigorous testing/certification program within the bank. Small business bankers will be respected segment experts, not merely junior or cast-off lenders who still dream about getting back into the “big leagues” of the Commercial Lending department.
Importantly, leading banks will become more focused on aligning the compensation and incentives of these individuals with the broad revenue that strong small business relationships can create. Business bankers will manage the profitability of a relationship portfolio much like a successful insurance agent or investment advisor. Instead of the typical constant turnover of account managers, leading banks will design their business models to encourage client and banker relationships that last more than a decade.
Mr. Williams is a principal with Cornerstone Advisors, Inc., a Scottsdale, Ariz.-based consulting firm specializing in bank management, strategy and technology advisory services. He can be reached at firstname.lastname@example.org.