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Community and Small Banks: How to Increase Business Banking Relationships in the Age of Fintechs

Turns out community banks and credit unions can be proud of themselves: According to a recent Javelin study as reported at Jack Henry Fintalk, businesses that identify a community bank or credit union as their primary financial institution report far greater satisfaction than those using a larger bank.

However, before smaller financial institutions break out the champagne, there are other factors to examine:

reduced teller

That impressive satisfaction rate – 90% among their business banking accountholders – also leads to a higher share of wallet and decreased likelihood of the business switching to a different institution.

Unfortunately, the satisfaction and retention of existing business accountholders isn’t translating into the ability to attract newer businesses. Of companies formed within the last five years, only 8% identify a community bank or credit union as their primary FI, meaning that 92% chose a larger institution.

With a record-breaking 5.4 million new business applications filed in 2021 alone, this means that community banks and credit unions are missing out on opportunities to acquire, nurture, and grow businesses – and your bottom line.

Time to Take Action

Fintalk identifies concrete steps and technologies that banks and credit unions can use to both attract and retain business banking relationships:

  • Sole Proprietors need just a bit more from their account than the average consumer. Consider adding what Javelin calls a “tweener” product, designed to help new business owners transition from running their business out of a personal account. Light on business-specific functionality, these accounts need access to basic transactional functions with 24/7 digital banking, including electronic invoicing.
  • Small to Medium Businesses (SMBs) are looking for more in their business banking relationship, but without the steep price tag that often comes with commercial banking services. To capture the hearts (and wallets) of SMBs, focus on providing a business banking relationship that includes:
    • Embedded invoicing, receivables, and digital payment acceptance.
    • A strong payments hub that helps growing businesses take advantage of real-time payments and low-cost routing.
    • A low-friction digital lending portal that helps businesses borrow to manage cash flow needs when the timing is right.
  • Medium to Large Businesses require their financial institution to deliver more than transactions. These business banking relationships need to provide data and insights that improve the long-term cash position of the business, allowing them to take advantage of advanced financial accounting and cash management practices, and treasury and risk management capabilities, plus sophisticated funding options. These businesses expect to pay for the financial technology and tools that support informed decision-making and create efficiencies for their employees.

The Personal Touch

Fintalk goes on to list services that a smaller bank can actually deliver more efficiently than a huge corporate behemoth:

More than three-quarters (76%) of SMBs are interested in receiving financial advice from their bank or credit union. But only 15% report receiving “comprehensive advice,” according to the 2022 U.S. Small Banking Satisfaction Study from J.D. Power.

Competing With the Big Boys

The data and personal experience make it clear that, in spite of specific challenges, community banks and credit unions have the ability to attract personal and business accounts. As we've noted in previous blog posts, enhancing customer experience is indeed a reliable tool for increasing business.

Part of enhancing customer experience involves providing the latest technologies for user interface (UI) and user experience (UX) -- which includes automating the process for seamless deposits of checks through mobile apps, while also providing the latest technologies for fraud detection.

Businessman holding word banking in hand with icon network connection on virtual screen dark background

Core platform vendors like FIS, JHA, Fiserv, and Alogent have made it simple for community and small banks to integrate the latest technologies like AI and machine learning. These vendors have "built the bridges" to close the technology gap, enabling these banks to compete with the "big boys."

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