Billion Dollar Banks' Perception of Small Business May Be Off Base
BOSTON -- Even as credit unions continue to build their presence with small businesses, there appears to be a disconnect between large banks' perception of the small business space and their ability to actually reach them.
A new report from Aite Group LLC focuses on how large U.S. banks currently define and serve small businesses and delves into their ability to understand the needs of small businesses to effectively cross sell to them. The data collected are primarily based on the results of a survey of 16 of the 50 largest U.S. banks ranked by total assets fielded between July and September 2008. The smallest bank surveyed had $16 billion in assets.
While more than half of large U.S. banks admitted that their small business cross selling abilities are nothing more than "average," 63% believe they have a much better understanding of small business needs than they did three years ago, according to the report.
Additionally, when asked to rate their ability to understand the needs of small businesses, 81% of survey participants rated their institution's abilities as "very good" to "excellent." Meanwhile, when small businesses were asked that same question about their banks, only 40% stated that they are extremely satisfied with their primary institution's ability to understand their needs and recommend helpful products to them.
"Though large U.S. banks currently enjoy the biggest share of the small business market, community banks are a growing threat in this space," said Christine Barry, research director with Aite Group and author of the report. "In order to maintain their leadership role, large banks need to effectively leverage their large branch networks, migrate small-business customers to more sophisticated business banking solutions, and gain a better grasp of small business product price points."
Barry said large banks' deep pockets should work to their advantage, enabling them to offer broader product portfolios and more sophisticated online capabilities, but they also need to improve cross selling, customer service and their understanding of small business needs.
Other findings were fraud prevention and alerts have seen the greatest evolution in their demand by small businesses. While only 6% of banks surveyed saw "high" to "very high" demand for sophisticated fraud prevention tools 24 months ago, 88% are now seeing such demand. Mobile banking also continues to receive a great deal of attention and the number of banks offering it continues to grow. But it remains a service in which only a moderate number of small businesses place high importance, according to Aite.
Barry said 90% of all U.S. core banking system replacements are currently being performed by community banks and credit unions. As a result, those large banks challenged by inertia will not be well positioned to meet the continuously changing needs of small businesses, she pointed out. To build their presence with the small business community, Aite found that large banks have an advantage with their extensive branch networks.
"[While] these large banks believe they have a strong understanding of small business needs, the small businesses themselves perceive community banks to be doing a better job," Barry said. "Small businesses have also given higher grades to community banks for their level of customer service."