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Four Steps to Banking Small Businesses


The combination of increasing regulation, continuing sluggish economic conditions and rapidly changing consumer expectations is shrinking the revenue potential of the demand deposit account. This stark reality is leading retail banks to focus more on business customers. Deeper market segmentation, bundling of service offerings, understanding the needs of businesses and strong relationships are the keys to growing market share in this increasingly important segment.

One reason for this renewed focus is that commercial customers are often still willing to pay a premium for services with clear value. Adding 175 small business or seven commercial customers can generate an additional $1 million in additional revenue, according to Barlow Research’s Business Internet Banking 2013 Report. Servicing small businesses can also lead to closer ties with high-net-worth individuals, opening the door to new wealth management opportunities.

However, success in the small business market requires financial institutions to conduct careful research and focus their efforts on specific targets. Commercial bankers who are skilled in scouting business prospects and defining customized commercial products and services are best positioned to build customer trust and retention. Here are four steps to achieving that:

First, segment the market in order to get a clearer picture of what different size businesses need and how to effectively target them. Business analytic tools combined with access to internal and market data will go a long way to helping achieve this.

Second, compile as much data as possible about the businesses you serve and hope to attract by industry type, complexity and risk level of business model, operational maturity and strategic goals. Although obtaining this information can be an exhaustive process, the payoff potential is significant. These findings can enable banks to anticipate changing needs for a business and put financial institutions in the position to offer the right solutions at the right time.

Third, package and price services to be more appealing to prospective clients. Sometimes, banking needs can be creatively addressed by solving a financial business problem or streamlining workflows and manual processes through specialized products and services. Often, it is as simple as educating your customer on products that are available and collaborating on the best products to address basic banking needs with a product bundle designed to meet most small business banking needs.

Product bundling also allows for more consistent pricing and perceived value, as banks can create attractive services packaging for several different types of customers. Financial institutions can bundle by segment and adjust prices to reflect demand, thereby maximizing income while charging reasonable fees. Yet, before financial institutions can bundle their products, they must evaluate their own business offerings to determine if they need to enhance their portfolio with additional capabilities or services. By thinking like their customers, banks can start by determining what businesses need.

When it comes to financial services, small business owners are most concerned with getting paid, paying money out and managing their cash flow needs on a day-to-day basis. Midsize and large businesses, however, have different requirements managing their company’s cash flow, which requires a range of robust cash management products and services. They demand more online self-service and control, and the ability to manage all accounts securely and efficiently, as well as a single access point for online visibility.

By making online the primary channel for clients, banks can strengthen their commercial relationships and increase online banking usage by offering a more efficient service channel for both their customers and the bank. Financial institutions should be aware that meeting the financial needs of these larger business clients requires sophisticated risk management tools in order to maintain compliance and regulatory requirements.

The fourth and possibly most important step is to keep a continued focus on excellent service. Every business customer wants to feel certain that the financial institution is on his or her side. Dedicated relationship managers can help small business clients feel that their bank is taking care of them. When it comes to small businesses, financial institutions that spend the time to develop a deep knowledge of the clients they serve and offer consistently excellent, tailored service will discover substantial opportunities for growth.

Ms. Crites is vice president of business banking strategy in the Bank Solutions division at Brookfield, Wisc.-based Fiserv. She can be reached at [email protected].