BOSTON — Based on current demand, expect small businesses to request more online payroll services and health savings accounts over the next few months, some of the nation's largest banks recently said in a new survey.
In June and July, Aite Group surveyed 16 of the 30 largest U.S. banks with all having more than $35 billion in assets. Of community banks, 80% are focusing more attention on business banking initiatives than they did three years ago, according to Aite's report Small-Business Strategies of the 30 Largest U.S. Banks: Closing the Gap Between Bank Offerings and Customer Needs. Sixty-nine percent surveyed said that winning the business of the small business customer segment is "extremely important" to their bank's overall performance.
In other areas, credit unions, while ahead of "mid-size" banks when it comes to a small business owner's choice for primary financial institution at 7% and 3% respectively, still lag far behind larger banks. The report also noted that credit unions are also ahead of nonbanks, which accounted for 3% for PFI.
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"There are several factors leading to the increased attention to this customer segment: their growing demand and need for more sophisticated bank products thus increasing the revenue potential of this segment, their greater willingness to bank online thereby making them less expensive to serve and the development of new online tools and solutions enabling banks to better serve, segment and understand specific needs to more effectively reach and serve them," said Christine Barry, research director at Aite and author of the report.
Banks also now realize that while on a standalone basis, each small business only spends an average of $10,000-$15,000 on financial products, when considered in aggregate, this customer segment represents a strong source of untapped revenue, Barry said. Aite Group forecasts U.S. small businesses will spend approximately $477 billion on financial products by 2010.
Most larger banks segment business customers by annual revenues. In fact, all but two of the survey participants considered annual revenue as a key factor for defining a small business, and 19% also considered total loans and credit outstanding. For most of the 30 largest banks, a small business is defined as any business generating under $10 million in annual revenues. But in an interesting twist that is currently considered the "sweet spot" for most credit unions serving small businesses, some banks are segmenting small business even further by having a "small business" group to address the needs of the micro-businesses, which are those having anywhere from less than $2 million to $3 million in revenue.
"The largest banks were the first to create these sub-segments, and other banks are now following their lead," Barry said. "Micro-businesses are believed to be more price-sensitive, with needs more closely mirroring consumers' yet requiring some business capabilities whereas larger businesses often need more sophisticated products."
While small-business customers are increasingly using the online channel, one-on-one attention continues to lead to higher levels of customer satisfaction, the report showed. Eighty-one percent surveyed said they have a "dedicated" sales force assigned to prospecting the small-business market and 50% assign their small-business customers a single point of contact or a relationship manager within the bank. Still, this latter touch point is typically reserved for a bank's largest customers, according to the report.
As for the top new products banks said they will offer to small businesses over the next 24 months, health savings accounts rank first followed by online payroll, remote deposit and payroll cards.
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