Small and medium-sized businesses (SMB) represent a significant growth opportunity for banks, with recent studies highlighting the increasing demand for financial understanding, assistance and capital.
As SMBs grapple with ongoing cash flow challenges and seek ways to improve their financial health, banks are uniquely positioned to provide valuable solutions and capture a larger share of this market.
According to a recent McKinsey survey, the U.S. banking industry has an estimated $150 billion in annual revenue potential from small-business banking across various products, including deposits, loans, cards, cash management and merchant services. This represents about 17% of the U.S. banking industry as a whole, with micro-businesses (less than $1 million in revenue) accounting for $70 billion of this potential.
To tap into the SMB market, let’s first take a look at the current landscape.
Cash Management Solutions and Financial Guidance Top Priorities for SMBs
Seventy-four percent of SMBs report their cash flow challenges have either remained the same or worsened over the past 12 months, according to Citizens’ 2024 Business Outlook Report. This highlights the pressing need for effective cash management solutions and financial guidance among SMBs.
Furthermore, the report indicates that 76% of small businesses are actively seeking financial advice. This desire for guidance presents a significant opportunity for banks to position themselves as trusted advisors and partners in their clients’ financial success.
There’s also tremendous value for business clients. Citizens’ report introduces the concept of “insight-driven” companies – those that leverage financial tools and expert advice at least weekly. These businesses are expected to outperform their peers in 2024, with 87% anticipating fast expansion and 72% having growth-focused five-year plans
In fact, twice as many insight-driven companies experienced double-digit growth in 2023 compared to their peers, and two-thirds of insight-driven companies expect to grow by 10% or more in 2024. Nearly 80% of insight-driven businesses report having an “extremely or very good” understanding of their company’s cash flow.
These points underscore the value that banks can provide by offering robust financial tools and expert advice to their SMB clients.
Strategies for Banks to Capture SMB Market Share
To effectively serve SMBs and capitalize on this growth opportunity, banks should consider several key strategies:
Banks must offer comprehensive cash flow management solutions. About 70% of survey respondents expressed interest in end-to-end cash flow management services from their primary bank.
Banks must also provide personalized relationship management. Relationship management remains the top factor in choosing a primary bank, according to McKinsey’s report. The study reveals that 47% of SMBs cite robust relationship management as a key criterion, while also highlighting the growing importance of digital integration with business software. This means banks must strike a delicate balance between investing in online and mobile capabilities and maintaining strong personal relationships.
Banks must also consider offering a broader suite of commercial enablement tools. More than 50% of SMBs prefer to obtain solutions like payroll, accounting and marketing analytics from a single provider. Banks can explore offering these tools through in-house development or partnerships.
Banks Must Demonstrate Value of SMB Banking Solutions
However, it goes beyond simply offering tools and recommendations. Banks must be able to provide guidance in a way that resonates with businesses and clearly demonstrates the value it will create for their organization rather than the cost.
To do so, banks should consider how AI can be utilized to support customer interactions. AI can help bankers identify and communicate the most relevant financial solutions for SMBs, focusing on the real-world impact to their business. Even for the most seasoned employee, selling SMB banking solutions is challenging. Afterall, it’s impossible to memorize the thousands of solution combinations for each business scenario.
Educating SMBs on cash flow improvement is also critical. Banks should provide easy-to-understand graphical education and peer information to demonstrate how cash management products can drive growth. Again, it’s about the value; not the cost.
Banks Poised for Growth: Unlocking SMB Potential Through Technology and Personalized Solutions
SMBs presents a significant growth opportunity for banks willing to invest in the right technologies, relationship management strategies and comprehensive financial solutions. By focusing on educating SMBs, providing personalized guidance, and leveraging AI-powered tools, banks can not only increase product adoption but also build stronger, more trusting relationships with their SMB clients.
As cash flow challenges persist for many SMBs, banks that can effectively communicate the value of their offerings and provide tangible financial benefits will be well-positioned to capture a larger share of this market. The key lies in shifting the conversation from cost to profit, demonstrating how banking products can directly impact an SMB’s bottom line and contribute to their long-term success.
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