Small business loyalty

One consistent trait across all small businesses: loyalty. Once you land one, it takes significant upheaval, such as a new commercial loan relationship, before they make a move. NFO research indicates that 81% of small businesses use the same bank for personal and business services. And in a survey of Barlow Research clients, about 60% said they kept their personal and business accounts at the same bank. Evidently, it’s just not worth the entrepreneur’s time and energy to shop banks, unless they are in the midst of raising capital. That’s why we believe it is vitally important to establish a credit relationship with every small business customer regardless of size.

However, high loyalty is not necessarily the same as high satisfaction. According to NFO, in 2003 57% of small businesses are very or extremely satisfied with their primary financial institution, up from 50% in 2002. This is a mediocre score overall. And with the advent of the online channel, it is easier than ever to shop around. And since only 22% of small business customers report being actively courted for their deposits and investments, incumbent financial institution may be vulnerable.

Typically it has been the interaction between the business owner and the commercial loan officer that has maintained, or sunk, the relationship. Though personal relationships are still the primary factor, electronic communications and online services are becoming important side benefits. The savvy loan or banking officer can use email, instant messaging, and a Web presence to supplement and extend the face-to-face relationship. Staying in touch, asking for feedback, and identifying new needs can all be done through frequent electronic communications.

Growth potential

 

Table 17 Accounting Method by Small Business Type Segment Annual Revenues Who Does Banking? Accounting Method Typical Software Microbusiness <$250k Owner Cash/ checkbook Excel Quicken Money Larger microbusiness $0.25 to $1 mil Owner Accrual/ Double entry QuickBooks Small business $1 to $10 mil Staff/CPA Accrual/ Double entry QuickBooks Peachtree Source: Online Banking Report, 5/04

The small and microbusiness market holds much promise for financial institutions looking to grow revenues and profits. Smaller businesses, which are almost 100% computerized (Table 18, next page), are particularly well-suited for online delivery; however, since most lack dedicated resources to handle banking matters, they can be reluctant to change existing processes and procedures. Even though your bank’s latest online feature may draw an enthusiastic response in focus groups, expect slow adoption by small business clients. They are simply too busy to pay attention to incremental banking improvements.  

While banks and other financial providers have long coveted the small business market, most have found it difficult to provide the high-touch services needed by business owners at prices that a smaller business can afford. However, we believe small business online banking offers a new paradigm. Automated online tools and electronic communications such as instant messaging and webinars, allow banks to deliver customized products at affordable price points, both for the smallest home-office-based sole proprietor as well as companies with hundreds of employees.

 

Table 18

Small business PC ownership

Source: NFO Financial Services Group SOHO/Small Business Owner 2002 Online and Channel Use