This series has examined why acquiring small businesses is so important for financial institutions and the critical role that product design plays in building a strong small business portfolio. While pricing, ease of selling/buying, and simplicity/segmentation are all critical in this process, there are no silver bullets for solving this issue. That’s why this exploration discusses the principles of product design versus describing what products your bank or credit union should offer. The answer depends on your strategy, the types of customers you’re serving, your delivery capabilities, and how your partners can help you go-to-market.
One of the key questions your organization should ask is whether you view small business banking as more similar to wholesale banking or retail banking. Typically, for those that relate small business to wholesale, the goal is to drive deeper relationships with larger small businesses. This requires products that have up-market appeal to more complex businesses and an articulation of those products that makes clear the bank’s commitment to meet their needs. For those that relate small business banking to retail banking, most are looking for efficiency in the sales and service process. Products that present simple bundles can enable a small business owner to come to the branch and leave with everything they need for their business. Oftentimes this is preferred to a longer sales process or one centered on credit.
There are typically two other defining strategy questions:
- Is credit considered a lead or cross-sold product?
- What is the brand position relative to cutting edge technology?
For the first, the product design implications include the extent to which credit is presented as a waiver criteria for deposit fees as well as how additional lending solutions (e.g. merchant cash advances tied to merchant services) might be presented. For the second, the product design implications include initial focus of bundles (e.g. e-commerce and mobile acceptance vs. traditional point of sale terminals in the merchant services world) and presentation/articulation of the core product and bundled features.
Many banks and credit unions further customize their product offerings based on the nature of the small businesses in their footprint. So-called “vertical” or “sector” strategies come into play here (e.g. a bundled offering for medical practices), but simple tweaks to how products are presented and what use cases are shared can create meaningful impact. There are many resources available to banks and credit unions looking to gain a better understanding of the small businesses in their footprint. Among these are data vendors and your card issuing and merchant processing partners who have insight into the local merchant base from “seeing” the transaction volume.
While it’s important to align the product suite with your delivery capabilities, it’s also important to align them with the capabilities of your partners. Before making a fee waiver contingent on credit card spend or merchant services, you’ll want to know that you can deliver those products confidently and that the economics work for your institution. Be sure that what you gain in relationship building exceeds the value of the fees you are rebating.
That wraps this series on more effective product design for small businesses. For specific examples of how financial institutions are bringing these recommendations to life enter the full Winning with Small Businesses experience. There you can read the full white paper, access a webinar and much more.
If you missed previous topics on this series, you can catch up here:
- Are financial institutions doing enough for small businesses?
- Growing Small Business Portfolios: Techniques for Financial Institutions
- 3 Steps to Designing Effective Products for Small Businesses: Pricing
- 3 steps to designing effective products for small businesses: easy to buy, easy to sell
- Three Simple Steps Financial Institutions Must Take to Design Products For Small Businesses