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The battle for business banking

The megabank vs. fintech arms race is creating lucrative opportunities for smaller financial institutions.

Mar 22, 2022 / Business Banking

Business banking is the next frontier for digitization. And while megabanks and fintechs are locked in an arms race to serve businesses, it is the community institutions that have a unique advantage: borrower satisfaction and agility.

Both megabanks and fintechs are aware they need to provide outstanding digital experiences to successfully engage businesses. To understand this trend, Numerated surveyed the websites of the 10 largest banks in the country (excluding investment banks). From 2016 to 2021, the number of business banking products offered by the U.S. megabanks that were available for online application increased by almost fourfold to 39%. Of those with the “apply online” option, 59% were for credit cards, checking and savings accounts, while only 15% were for business loans.

We also surveyed four large fintechs who operate almost exclusively online. They’ve built their business around slick, fast, digitally-native, user experiences that feel much more efficient than the typical bank interaction. And they’re capturing the majority of mindshare among those researching small business lending.

All of this has put pressure on regional and community banks to digitize despite their smaller budgets and innovation teams. To win, these FIs need to enhance on what they’ve always been better at – customer satisfaction and trust – with digital convenience.

While the megabanks have focused their resources and multi-billion dollar budgets on making up ground against fintechs, they can’t buy the customer satisfaction or trust that many smaller banks have historically established within their communities.

By and large, when compared to megabanks and fintechs, credit unions and small banks enjoy much higher customer satisfaction rates. The pandemic did not compromise this – rather, it made it stronger. During the pandemic, many small businesses were more likely to find timely assistance from a community bank than a megabank. More than 11 million small businesses obtained critical funding through the Paycheck Protection Program (PPP), most of them doing so digitally.

Even before the COVID-19 pandemic, small financial institutions punched above their weight. Community banks with $10 billion or less in assets make up 15% of the assets under management in the United States, but at year-end 2019, community banks held about 25% of small business loans.

In other words, community banks hold a smaller share of industry-wide loans by dollar volume and number than non-community banks, yet their participation in the PPP was larger than their share of both total loans and commercial and industrial (C&I) loans.


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Small banks have earned reputations that must be maintained if they’re to survive. The good news is, for those that do act, the results can be extremely positive. A commercial bank with $50 billion in assets recently opened up small-business lending through their branch and digital channels, and saw a 540% lift in volume.

In sum, when small banks tap digitization to meet customers where they want to be met, magic can happen. To stay competitive, community banks need to combine their long track record of success in local markets with digital tools to bring banking online to further embed themselves in the communities they serve.

It starts with omnichannel support. The ability to provide borrowers with a choice will create a competitive advantage that alternative lenders can’t replicate with a business model that is exclusively online. Best-in-class customer experience is also a critical component. An end-to-end, easy-to-navigate, efficient lending experience is crucial to customer acquisition.

Finally, small banks need to focus on enabling sales transformation. Rapid adoption of technology solutions will provide community banks with a competitive advantage over megabanks whose bureaucratic structure leads to slowed progress and implementation of products. Many lenders accelerated their digital sales offerings during the pandemic, but there remains a big opportunity for continued innovation.

Dan O’Malley is CEO at Numerated.