Large banks and other financial providers have long coveted the small business market, but have found it difficult to provide the high-touch services demanded by business owners at a price smaller businesses can afford. We believe online delivery is the answer to this dilemma as it allows banks to customize powerful financial management products for sole proprietors, partnerships, and S-corporations.

The Opportunity

• Banks are missing an enormous opportunity to serve the lucrative microbusiness (see definition, right) portion of the small business market.
• Although this group has long been dismissed as not having enough revenue potential to justify the labor required to serve it, we believe the combined value of business and personal financial product usage, and the potential for growth in both, makes them a highly desirable segment.
• The best opportunities are among self-employed professionals and business service providers who do not require constant depositing of cash and paper checks.
• There is less competition for this segment because it is difficult to reach and undervalued by mainstream financial services providers; however, non-banks such as Intuit, GE, and American Express have made in-roads in certain product categories, and will attempt to leverage those strong relationships to upsell additional services.
• Credit services are still a likely determinate of which bank is deemed the “primary” financial provider; home equity secured lending, with underwriting flexible enough to accommodate the self-employed, is especially important when serving microbusinesses.
• New payment processing services, such as CheckSpace  that allow microbusinesses to easily accept credit card and ACH payment, are a great lure for finding new customers.

Microbusiness Attitude and Behavior

• Online banking is a low priority among business customers who care more about the relationship with their loan/biz banking officer, branch convenience, credit lines (especially home equity), loans, rates/fees, and customer service.
• Small businesses want stability in their financial relationships; they want to deal with a company that will be there in the future; and, most important, they want a relationshipp with a real human who knows the business and won’t let anything fall through the cracks during management or business upheaval.
• Therefore, it’s vitally important for most microbusinesses to connect with a human during the initial sales process; someone the business owner believes will have a positive impact on credit decisions.
• This all-important relationship with a human must be nurtured after the initial sale; email and other electronic tools can be effective in fostering the relationship.
• Business owners may value the bond with their bankingg officer more than the relationship with the bank.
• Businesses don’t have the time or inclination to adjust their systems and procedures to use things that  “sound good on paper.” But, if you can get them started, small businesses will often become loyal online banking customers, more likely to stay with their bank.
• Given the combined value of their personal and business usage, and the owner’s optimistic perception of future growth in both, small businesses want to be treated with respect.
• The importance of each customer service interaction grows in importance as business owners move to self-service options, relying less on interactions with branch staff.
• Over time this segment is likely to move to self-service over the Internet (primarily email) and relatively brief telephone conversations.                                                                                             

Primary Data Sourcee

Many of our conclusions are based on data provided by NFO WorldGroup-Financial Services (formerly PSI Global). We owe a debt of gratitude to Maria Erickson, EVP, for her patience in answering our questions and for making data from their Small Business and SOHO studies available for this report. Contact Maria at (813) 371-3800 x 294, for more information on purchasing financial services research from NFO.