BOSTON — Credit unions who like to comfort themselves with the thought that big banks won't bother with small businesses might want to think again.

A new report from Aite Group finds that more than two-thirds of the nation's largest banks consider this group "extremely important" to their institutions' overall performance.

The report, based on a survey of 16 of the 30 largest U.S. banks, also finds that the Internet is increasingly the preferred channel of business for these businesses as they decide each day how to interact with their financial institutions.

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However, while cash sweeps and other basic transaction functionality is a given, the report's author, Christine Barry, finds that because of limited choices of services, "a disconnect continues to exist between small-business needs and bank offerings."

The lack of such features, Barry says, "has resulted in bank revenues lost to nonbank entities offering traditional bank products." But, in case CUs think they can rest easy in their pursuit of small businesses, Barry adds that "as banks increasingly recognize this loss, and the importance of this customer segment as a potential source of revenue, the gap between bank offerings and small-business needs is becoming slimmer."

Quicken-like capabilities, such as spending categories, cash flow forecasting and reporting functions that include graphing options, are becoming increasingly available, she adds.

One of the key players in that kind of online e-commerce, of course, is Digital Insight, now a subsidiary of Quicken owner Intuit and one of the original and ongoing major players in the credit union space.

Barry includes DI in a list of major vendors serving this space and warns her bank readers of the opportunity that banks' competitors see in the small-business marketplace,

She says several of the largest banks also are investing in other kinds of offerings that leading-edge credit unions have embraced, such as online account opening, EIPP and tighter security at the transaction level.

"Vendors have developed solutions that are user-friendly; less complex than the more sophisticated large corporate cash management solutions (but which can be enhanced with additional modules to grow with the company as its needs become more sophisticated); and which are modular, so business customers only have to pay for those capabilities which they need," Barry says.

And the vendors providing those services include familiar names in credit union land: Digital Insight, Fiserv, Jack Henry and Corillian, to name a few.

Indeed, familiarity and functionality, along with price flexibility, is helping to drive increasing adoption of the online channel by small businesses, defined by most of the surveyed banks as having annual revenues of $10

million or less.

"The adoption of online banking is increasing as a result of a greater overall level of comfort with the Internet," Barry says. Her think firm estimates that approximately 45% of small businesses currently bank online, while 60% are forecasted to be active users (accessing the online banking site at least once per month) by the end of next year.

"In today's competitive market, the customer is certainly king, and banks are now striving to do whatever is necessary to not only win business, but also to retain and grow with customers as their needs become more sophisticated," Barry says.

And her conclusion about the potential stickiness of such business relationships holds true for credit unions, as well.

"The small-business customer segment is not an easy one to please, but once this is achieved, banks have the potential to enjoy a long and fruitful relationship with them," the Aite Group analyst says.

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