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Taking millennials seriously is key to your SMB strategy

Tailored, intelligent solutions like invoicing and receivables can help banks and credit unions can become an orchestration hub of digital services.

Feb 4, 2022 / Business Banking

Note to all banking leaders: millennials aren’t kids any more. Generation Y has now surpassed baby boomers as the largest adult population group in the U.S. and within a few years, they are expected to be a majority of B2B decision makers. In the battle for better, faster and smarter small-business banking solutions, they hold the keys to your success.

Financial institutions haven’t taken the millennial-owned SMB demographic seriously. Banks have failed to deliver the digital services necessary to run their businesses, like cash flow management and payment acceptance tools, and have shoehorned them into retail or commercial banking platforms that are either complex bolt-ons or simply too basic.

Previously held conventional wisdom was that servicing smaller businesses wasn’t particularly worthwhile. The immense encroachment of fintechs has made it clear that this is simply not the case. Millennials are now in the driver’s seat in small-business banking, and their digital preferences have unearthed a massive opportunity for financial institutions.

Tailoring your approach to millennials by providing digital experiences that mirror the simplicity and mental experiences of consumer software while delivering the services they find valuable can set you up for long-term success in this segment.

Let’s dive into specifics. Nearly one-third (30%) of millennials reported owning a small business in 2020, and 60% self-identify as entrepreneurs. Although they don’t yet comprise the largest share of the market, they soon will, and offer tremendous insight into the not-so-distant future for small business banking.

Millennial SMB owners are highly engaged with “what’s new” because of their use of digital channels. It is much easier (and more cost-efficient) to roll out innovative products and services to this segment without ever asking a client representative to lift a finger. And if your product is desired by the market, the behavior of this younger segment will tell you. Testing product-market fit has never been easier.

What’s more, millennial small business owners are willing to pay for the digital services they find useful, like cash flow management, invoicing, receivables and accounting tools.

Again, not many financial institutions offer these types of services, while many small businesses have already gone beyond their primary relationship to find them from the likes of Square, QuickBooks and other fintechs. SMBOs are also interested in receiving accounting and payment services from their banks. This is the core opportunity for financial institutions – and the preferences of millennial-run small businesses resides at the heart of it.

Understand that millennials aren’t kids anymore – the leading edge of the generation is turning 40. Their preferences are essential to integrate, and their businesses present legitimate, lucrative opportunities.

As important as this segment should be to your strategy in small-business banking, it’s necessary to understand that they will always inherently be at greater risk for churn than previous generations. They view their banking relationships through the lens of convenience and expediency and don’t mind the switching costs associated with changing banks. They’re avant-garde innovators, with roughly half of millennials owning some form of cryptocurrency. Fail to deliver the services they like in a seamless manner – and you’ll fail to retain the relationship. Great customer service can no longer be your primary point of differentiation.

Finally, as the millennials approach full maturity and the digital-native Generation Z comes of age, you must recognize that not taking this opportunity seriously today will leave you in the dust tomorrow. Banking, at its core, will only continue becoming more digitized, and the wants and needs of millennial SMB owners today is merely a foreshadow of what’s to come from Gen Z and beyond.

By stepping in as a facilitator and offering tailored, intelligent solutions like invoicing and receivables, banks and credit unions can become an orchestration hub of digital services – enabling them to build sticky customer relationships and provide immense value to a customer segment in dire need of something better.

Curt Raffi is chief product and innovation officer at Bottomline.

Learn how your financial institution can win relationship primacy by offering services to match SMBs’ newly upgraded digital capabilities in the BAI Executive Report, “Big stakes in small-business banking.”