The Pitched Battle in SMB Banking

To paraphrase Hemmingway, “How do you lose customers? Gradually, then suddenly.”

Customer satisfaction of small-to-medium size businesses (SMBs) with their primary financial institution has been on a decline for years and SMB churn is increasing, according to Aite Group and FIS.

Until recently, this trend was driven by larger banks investing in business customer acquisition: premium offers, vertical expertise and, of course, new technological capabilities. Community and regional banks increasingly relied on “service” to stem the tide of customer attrition.

Fintech offerings for SMBs have historically been limited and quite niche. Conventional wisdom among bankers was that business banking was too complicated — and, required human/branch interactions — for fintechs to pose a real threat.

It’s true that most fintechs start with a narrow product. That is because they are myopically focused on solving customer problems. Solving one problem quickly leads to identifying, understanding and solving the next problem. This is the genius of innovation. And, SMBs have no shortage of pain points when it comes to their financials.

The problem for banks is that many niche players now have robust offerings. QuickBooks, for instance, has long been relegated to general ledger accounting. But guess what? They have millions of SMB customers with plenty of pain points. And, without much fanfare, QuickBooks become a (synthetic) bank. They offer an integrated deposit accounts (via Green Dot) and lending (via a marketplace). Poof! A bank! …with integrated GL, Payroll, etc.

QuickBooks is not alone. PayPal, Square, Wave Money, Kabbage and Shopify all have similar (synthetic) bank offerings. And, they all have existing relationships with SMBs and now are aggressively attacking the banking/financial services space.

These surging fintechs have a lot going for them, but so do traditional banks and credit unions. For banks looking to hold their ground or (gasp!) go on the offensive, there are three key steps to follow:

1. Talk to customers. BUT, not your best customers. Talk to the low-balance or single-account customers. You are probably one of 2–3 banks they work with. Find out why you have low share of wallet — what do they need to make their business better.

2. Forget about product. When empathizing with customers about pain points, it is a common pitfall to think, “oh, they just need to know more about our 37 add-ons to treasury services.” Sure — maybe. The more likely scenario is that your current product set doesn’t meet their needs in a way that makes sense to them. No business owner wakes up and thinks, “I need reverse positive pay today” or “the one thing I’m missing is a 504 loan.” Rather, owners are worried about fraud and minimizing long-term occupancy expenses.

3. Give tools to your customers (and, bankers) that make their lives better. Follow the lead from the fintechs: leverage technology to simplify, digitize and improve. SMB owners want to focus on running their business and prefer to spend as little time on their financials as possible. If banks can deliver solutions to facilitate that, they will have customers for life…and, fend off attacks from the synthetic banks.

The Monit team consists of former bankers and small business entrepreneurs. And, we know exactly what banks and SMBs are facing. We work WITH banks. If you are a banker who wants perspective on how to better serve your SMB customers and attract new prospects, we’d be happy to speak with you. You can reach our CEO at [steve] [@] [monitapp.io].