Winning with Small Businesses—Part 1 (of 6-part series)

Are financial institutions doing enough for small businesses?   

It’s undeniable that small businesses are critical drivers of the US economy. According to the United States Small Business Authority, small businesses account for:

  • Over 99% of all employer firms in the United States
  • Nearly half of private sector jobs
  • Approximately two-thirds of newly created jobs

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While many tend to associate small businesses with “Main Street”, they also account for over one third of total high tech employment and 98% of exporters. 1

Given the critical role of small businesses in the economy, it’s natural to ask the question – are financial institutions doing enough to serve small businesses’ needs? The reality is that small businesses represent a highly attractive profit pool for banks and credit unions. In fact, it’s even more profitable in aggregate than the combined affluent and high net worth customer segments.

And when a small business brings its owner with it, the profit potential of the relationship can increase over 60% to ~$1,100 in post-tax profits annually. 2 Given the ever-tightening margins in retail banking, answering the question of whether your financial institution is doing enough for small businesses is more critical than ever.

While most financial institutions might automatically think “lending” when they think about small businesses, few small businesses are “unbanked” and most that want credit ultimately receive it. So what about their needs for financial services that extend beyond basic loans? The market for serving the more complex financial needs of small businesses is very competitive. The past few years have seen dramatic expansion of competition across channels and across institution types, with large banks and non-banks alike now actively competing for small businesses. Given the competitive landscape, many banks and credit unions are revisiting their core growth levers and focusing on creating more competitive products for small businesses. This six-part series,

Winning with Small Businesses, will look at three keys for more effective small business product design:

1. Priced to maximize the value exchange

Recognize the difference between economic value to the bank and perceived value to the customer. Align features and price products to maximize the value for both parties.

2. Easy to buy, easy to sell

Align the product suite with delivery capabilities (complex products for specialized sellers and less complex products for generalists). Empower sellers and customers through effective online and offline digital and analog sales aides.

3. Simple and segmented

Simplify the product suite, align products to distinct segments with distinct needs, and enable customers/prospects to quickly assess the product suite to find the right fit.

Effective product design can support a shift in your business toward more profitable customer segments and accelerate growth by creating more value through better products and services. We’ll explore how you can design products that are more attractive to small businesses throughout this six-part series.  If you can’t wait for the series finale—you can find Vantiv’s full whitepaper, and access a webinar, at the Winning with Small Businesses home.

 

Continue reading for techniques for Financial Institutions.

 

1 SBA, https://www.sba.gov/sites/default/files/FAQ_March_2014_0.pdf, 2014.

Note: Small businesses defined as independent businesses having fewer than 500 employees.

2 Vantiv, “Winning with Small Businesses” 2015.