Bob O'Meara, vice president and director of research at Raddon Financial Group, said a recent survey of 1,200 small business owners asked why they selected their financial institution. Significantly ahead of convenience and existing relationships, was "it was recommended by an acquaintance."
"We know that referral programs can be effective for consumer checking, and our research and discussions with clients has shown that the most effective programs reward both the referring customer and the new customer," O'Meara said.
Credit unions could reward small business members with higher perks. O'Meara said if the will is there to pay $50 to $100 for a new consumer checking account, the dividends for paying for one with 10 times the balance potential could be substantially higher.
"But, as always, be cautious. There are always more people trying to game the system when the incentives get richer," he advised. "Try to structure some type of requirements that minimize game playing."
Referral incentives are just one way credit unions can leverage their presence within the small business market. In the Raddon survey, 68% of respondents said they used one or more of their personal accounts for their small business. Checking led the pack at 50% followed by credit cards at 42% and debit cards at 37%. O'Meara described this group as the "cross-over" segment. Credit unions could extend their referral programs to reward employees for giving referral cards to retail customers they know or those identified as running their business through retail accounts.
"Small businesses say that the employee they have contact with most often is a teller," O'Meara said. "Tellers know their customers and can probably tell you more about them than any demographic appended data can."
As business lending continues to take hits within the credit union industry, deposits and cash management services are being moved to the forefront. Debit cards, for instance, are probably the fastest way to establish a relationship with small business owners. Raddon found that debit card income ranges from $195 per year for firms with less than $100,000 in sales to $2,827 for companies in the $2 million-plus sales category. The overall average is $895.
"There is a lot of room for growth here," O'Meara said. "With just 33% of firms using business debit, about 50% if you count the owner's personal debit card, we are far from the point of saturation."
Small businesses in the $100,000 to $500,000 category are a prime niche to woo, he offered.
"A portfolio of checking accounts from firms with sales of less than $500,000 is going to produce 10 to 20 times more core deposit balances per account than a consumer checking portfolio," O'Meara said.