Small businesses are a relatively untapped market for retail banks. Banks historically have been reluctant to engage with small businesses. There is a perception that small businesses are riskier than other bank customers and that there is not enough money to be made on them. That is not the case. In fact the numbers tell a very different story.
- Small businesses with revenue less than $1M in and in business for more than two years are eligible on average for 8.3 products but are currently only opening on average 1.1 products
- Businesses with greater than $1M in revenue and in business for more than two years are eligible on average for 10.8 products but are currently opening only on average 0.8 products
- Because of the number of small businesses, there is over three times greater potential from the small business than from larger businesses with revenue greater than $1M
So what strategies can you employ to capture the small business market?
Focus on selling “sticky” products – A sticky product is anything that makes it really difficult for a small business customer to leave a bank once they start using it. Once the customer chooses them, there is a high cost for them switching to another bank.
“Three” is the magic number – Sell at least three products to small businesses at the initial point-of-sale. Once a customer is using at least three of your products, the harder they will find it to buy and use products from a different bank.
Sell higher margin products – The one area where banks can gain a competitive advantage is in the area of Treasury Management Products. These products are typically your most profitable products and include Merchant Services, Online Payroll, Pay Cards, Positive Pay, ACH Collections/Payables/Debit Filter, Web Invoicing, Lockbox, Wire Transfers and Remote/Mobile Check Deposit among others.
Provide analytics to help your customer – Banks contain vast amounts of information on their small business customers. This data has traditionally been locked away in silos. Banks can become trusted advisors to their small business customers, offering them advanced analytics solutions leveraging their everyday financial data. This will increase stickiness and differentiation by helping customers leverage data, providing them easy to use and understand analytics built on their payroll, spend, and deposit flow.