NASHVILLE, Tenn. — Banks are scrambling to adjust as digital technologies pioneered by payment companies and other nonbanks intensify competition for small-business customers.
At American Banker's Small Biz Banking Conference this week in Nashville, Tennessee, the dominant theme was that the old ways of serving small businesses will no longer suffice. Many banks have long relied on smaller commercial customers visiting their brick-and-mortar branches where they offer checking accounts, cards and loans.
"The small business wants to be more online, but they're still having to do much more of their business through branches than they desire," said Isio Nelson, head of client engagement at the research firm BAI. "They want to be able to transact online, open online and be able to get back to doing their business."
One example of a bank that is updating its approach: U.S. Bank on Monday
Irv Henderson, U.S. Bank's chief digital officer for small business, said during remarks at the conference that all banks are thinking about the reimagination of the customer experience so that it goes beyond checking, savings and lending relationships. "And in fact if you're not doing that, I think it'll be increasingly difficult for the next seven to 10 years."
Banking incumbents are responding partly to moves by firms like PayPal and Block, the parent company of Square, which are expanding beyond payments to offer a digital suite of banking products to their small-business customers. Square, which operates a Utah-based industrial bank, offers small-business loans of $300 to $250,000 as well as checking and savings accounts.
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"Square's firmly coming after your customer base," Derik Sutton, chief marketing officer at Autobooks, which partners with banks and credit unions to offer digital services to small businesses, warned bankers at the conference. "Every time you see an incoming deposit from Square, you have to think about that as a flight risk to your organization."
Sutton was critical of banks for making it difficult for time-pressed small-business owners to find the information they need. "Your websites often look like Cheesecake Factory menus," he said.
There has been some good news for traditional banks. The Paycheck Protection Program, which sparked a frenzy of activity at banks in the early days of the pandemic, has led to opportunities for deeper relationships with the small businesses that received emergency cash. The PPP also pushed many banks to spend money on digitizing processes that were previously handled manually.
What's more, the small-business market is growing at a time when many Americans have decided to leave 9-5 jobs and strike out on their own.
This year, 5.4 million new businesses are expected to be formed, according to Keren Moynihan, a former banker who is the CEO of Boss Insights, which provides business clients' financial data to lenders. That's up from 3 million a year before the pandemic and 2 million per year a decade earlier, she said.
But competition is fierce. Nonbanks, many of which also got a boost from the PPP, are poised to benefit from the larger market. And growing interest in embedded banking could lead to further fragmentation of customer relationships.
Chris Hendrickson, small-business strategy and transformation officer at
"I think the ones who are getting it right out there are saying, 'No, it's its own thing.' And we can't treat it like commercial, we can't treat it like retail," Hendrickson said. "We have to invest in that."
Dallas-based
"We don't want to dip our toe in the water," he said. "We're investing in a big way — people, technology and really, I think more importantly than anything … into what we're doing strategically for small business."
One area where banks have started to improve, but still have a long way to go, is in using the ample data they have about small-business customers, said Blaise MacNeil, senior director at FIS.
Such data can be used to offer tailored advice to business owners.
"Banks have reams and reams and reams of data about their customers," MacNeil said. "But they really struggle to actually use it."
Nelson said that every minute a small-business owner spends on hold during a phone call or inside a bank branch is a minute that they aren't spending working on their business, or with their family.
"The best banks will be the ones that act like invisible superheroes," he said. "They protect the soundness of the system so we can all sleep at night. ... But at the same time, you don't see them. You don't see them when you don't need them."
