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Why small business customers don’t embrace digital banking


The 29 million small businesses in the U.S. account for 54 percent of the country’s sales, according to the U.S. Small Business Administration. And in a digital era gone entrepreneurial, the small business sector is also growing, with more startups and declining rates of failure.

Yet if at least some vital part of the small business space centers on high-tech, an ironic disconnect exists between these (and other) potential customers and today’s best digital banking efforts.

For banks, the obvious issue is how to handle small business customers and address their needs with efficiency. And at least on paper (or its e-equivalent) the case for digital channels looks good enough. They present a low-cost platform to serve this segment and achieve the right balance for profitability. And with many small business customers also driven by convenience, evidence suggests they would be open to online and mobile banking services.

That is why we found it surprising when we discovered the number of small business customers using online and mobile banking declined in 2016 compared to 2015.

In a survey of U.S.-based small business managers across 20 industries, 20 percent of respondents said they don’t use online banking even though their financial institution offered it—more than double the 9 percent recorded in 2015.

We saw a similar pattern with mobile banking: In 2016, 34 percent surveyed indicated that they’ve never used mobile banking, even though their financial institution offers it; this number measured 28 percent or lower in 2015.

Our analysis also revealed that 33 percent of small businesses do not embrace current mobile banking solutions—and up to 69 percent have a negative perception of such services.

Why is this? Obviously, something is amiss here. Small business customers don’t appreciate the value digital services represent and therefore opt to use these channels less. The results also suggest that banks might lack the right approach when they communicate and sell their digital offerings.

Consider the busy, information-heavy pages of a typical financial institution’s websites. To say the least, the content creates a “cognitive strain” on the human mind. This is not a general observation, but one with major implications for banking.

Behavioral economics have shown us for several years now that humans don’t make decisions based on careful weighing of benefits and costs. Instead, our brain has psychological biases as it seeks to conserve energy, avoid cognitive strain and, where possible, employ an experimental problem-solving or heuristic approach (that is, a practical method not guaranteed to be optimal or perfect, but sufficient to reach immediate goals.)

Meanwhile, financial institutions have focused digital transformation on service-side facets such as account opening and financial management tools. Yet on the customer engagement and sales side—which hinges on concrete services they value—the needs remain largely ignored.

Thus we need to pay more attention to the choice architecture within which we ask small business customers to make decisions. True: Aesthetics are important. But we must afford higher priority to cognitive science, usability engineering and human-centered design tools. These allow us to optimize digital channels for the small business users’ natural needs and behaviors.

The way we present a digital banking proposition, communicate its value, approach packaging and pricing: all of this requires more careful consideration. Nor does it suffice to make information available digitally in a comprehensive fashion.

Banks need to do better onboarding small businesses onto their mobile services and digital offerings, whether through better value communication or enhanced training.

Our survey analysis found that existing digital offerings fail to meet the small business customer’s expectations in either value perception, value delivered or price perceptions.

And so we must take steps to assess our approach to designing, pricing and selling digital solutions. We commonly observe that instead of employing a coordinated approach, financial institutions manage the steps of designing, pricing and selling a digital offering separately, without consideration for one another. This results in suboptimal products, prices and offer presentment.

If banks want to improve the utilization numbers for their mobile and digital offerings, they need to implement a smart structure:

  • Understand customer needs deeply
  • Design and package products to meet those needs
  • Price them fairly based on willingness to pay, and  
  • Communicate product value effectively through digital channels.

Now is the time for banks to rethink their digital product offering and design approaches. This defines how to better serve the small business customer.

But there is more: It redefines digital in a way that proves refreshingly human. Technology, which has taken so much of the guesswork out of banking, needs to avoid traps that keep customers guessing.


David Chung is a director at Simon-Kucher & Partners, a global consulting firm specializing in TopLine Power, which encompasses strategy, marketing, pricing, and sales. Simon-Kucher’s practice is built on evidence-based, practical strategies for profit improvement via the top line.