Despite traditionally focusing on the retail member side of their business, credit unions are beginning to realize that opportunities abound in the area of member business services. Small businesses represent the overwhelming majority of businesses in the U.S. and members typically bring with them higher deposit amounts, larger loan volumes and more wallet share, in turn generating increased member satisfaction, reduced attrition and increased bottom-line profits through fee based revenue.

Growing their member business base brings with it new challenges however, leading to apprehension and uncertainty from credit unions considering the move. It is therefore important for credit unions to be equipped with a good understanding of the technology solutions and best practices to allow them to seamlessly transition to member business services. Since credit unions are not banks they need to approach dealing with member business services in a different way.

Member businesses have unique requirements and consequently retail Internet banking products do not meet those needs. Most prioritize cash management products and services that will allow them to manage their financial resources and streamline their back office processes while increasing productivity. Basic member services lack the features and functionality that businesses need and many credit unions have helplessly watched as their small business members switched to other financial institutions that offered the services they were seeking.

To serve the member business market, credit unions should take a phased approach that will both ensure they are adequately prepared for the potential challenges and guarantee satisfied members.

In this phase, credit unions need to get a sense of the overall market to establish the types of services they should be offering to their member businesses. Should a credit union offer wire services, payroll services or positive pay processing? Credit unions must assess the market and take advantage of the quantitative data that exists. Preliminary research will go a long way toward answering these questions. First, any credit union considering member business services needs to determine how many “DBA” (Doing Business As…) accounts they currently have on their system. It will also be helpful to gather their bill payment statistics from retail Internet banking. Next, credit unions should conduct several surveys to determine the types of businesses the DBA's are running and to find out the types of businesses in the area that are currently utilizing cash management services from other financial institutions. Another suggestion would be to thoroughly research area banks to discover whom they are targeting and for what reasons. Once a credit union understands their target market dynamics, it is time to select a member business solution that will effectively compete with the financial institutions in the area. Credit unions need to determine the fees associated with the services they will offer and make them competitive. It will be imperative that member businesses have access to reliable and intuitive self-service. A credit union that provides a solution that allows businesses to easily access their cash management tools demonstrates that it is prepared to manage their distinctive needs.

Credit unions should seriously consider technology improvements during this phase, as competitive services require up to date systems. Analysis should include determining what vendors offer solutions with the flexibility to meet their needs. Does the credit union traditionally manage their offerings in-house, or do they outsource? Of the vendors they determine have the appropriate features and functionality, how much of the products they deliver are built as an integrated set of offerings? How many of the offerings are actually delivered through 3rd party vendors that provide little integration between them? This is extremely important to understand because tight integration has a direct correlation to ease of use for credit union members, which translates into higher user adoption and customer satisfaction.

Surprisingly, there exists quite a gap between small business adoption of member business services (58.5%) and adoption of online banking (32%) and credit unions should therefore consider transitioning small business transactions from traditional channels to online, self-service channels to improve the quality of the interactions and reduce costs.

Once a credit union has rolled out member business solutions and established a foundational relationship whereby businesses are managing their financial resources through it, the credit union can easily capture their business lending needs. First, a credit union must determine the loan types they will offer and then they must determine the rates associated with each loan type. At this stage, it is also time to establish relationships with business partners such as credit union service organizations, small business administrations and commercial lending companies to make the business lending solution more competitive.

In 2003, a small Michigan technology company with 15 employees and $600k in annual revenue began utilizing member business services, with a focus on a cash management solution. At that point, eight of 15 (53%) company employees joined the credit union. Of these members, seven established corporate credit cards and the line of credit was $100k. By 2005, when the company had $2,100,000 in annual revenue and 30 employees, the correct approach to handling member business services was to increase the new member Select Employer Group (SEG). In this case it led to 22 of 30 (73%) employees becoming members. A total of 14 employees now had corporate credit cards and there was a line of credit increase to $300k. As this business grew, so did the wallet share. Small businesses represent a significant opportunity for credit unions whose independence and reputation for personal attention are a natural fit for growing businesses. It is essential that credit unions recognize that small business members will pay for online business services that are commensurate to the value they realize from those services. Will the credit union help to solve my tax payment obligations? Will it help me pay my employees and suppliers efficiently and reconcile my accounts in a timely manner? Will it allow me to manage my personal and business accounts in one place and reduce my trips to the branch?

Offering a solution for these desires will put a credit union in the position to effectively compete with other financial institutions, but to do so, it must anticipate the distinctive needs of small businesses and demonstrate a deep understanding of their market.

Instant Insights /

Best Practices in Addressing the Untapped Small Business Market: A How-To Guide for Credit Unions

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