Meanwhile, credit unions are seeing the bulk of their success with micro businesses that generate between $101,000 and $500,000 in annual revenues, the report noted. Seventy-six percent said this segment is their sweet spot. Of the credit unions surveyed, more than 50% have member bases consisting of less than 10% of businesses. Still, 91% said changing attitudes, market pressures, and other factors will lead to a larger percentage of business customers in their membership over the next two years.

Credit unions are paying more attention to courting that member base.

There are currently more than 24 million businesses in the United States. The majority, 98%, are small businesses–defined as those organizations generating less than $10 million in annual revenues. This segment–which is not only large in number, but also in revenue potential–spent nearly $400 billion on financial products in 2007, and is expected to spend approximately $477 billion in 2010, Barry pointed out.

Credit unions fall into two categories when it comes to the small business market. Some continue to reach out to "primarily mom and pop" type businesses preferring to focus their investment dollars on retail banking initiatives, according to the report. The second group is shifting away from traditional credit union practices and is adopting more of a commercial path. Aite Group estimates that approximately 45% of credit unions will fall into this category during 2008.

"These institutions are hoping to capitalize on the opportunities that small business members could potentially bring, and plan to offer a broader array of commercial [or] business banking services," Barry said. "Small businesses will be a primary target market for these institutions, for whom they will try to offer distinct business offerings. These credit unions are often reaching outside their traditional member groups for new members."

The great equalizer appears to come through online technology. Credit unions tend to be less risk-averse and much more technologically savvy than banks of a similar size, Aite said. Approximately 57% of the 1,200 largest credit unions budgeted more than $250,000 for new technologies in 2007.

On the other hand, many do not have the necessary technology in place to offer business capabilities, and, as a result, need to replace their core systems and offer business banking and commercial lending solutions, Barry said. A November 2007 Aite survey of 303 small businesses showed that 71% of them ranked online banking their second most often used product behind business checking accounts at 79%. Debit and check cards at 68% rounded out the list.

"Those institutions that want to build up a strong small business member base must not only broaden their product portfolios, but also allocate a greater percentage of their IT budgets to business initiatives and enhance their online capabilities," Barry said.

When it comes to whether credit unions are a competitive threat in the financial services industry, the perception is relative. Sixteen of the top 30 banks do not consider credit unions to be as big of a threat as perceived. Fifty-six percent of all banks surveyed said they do not pose a competitive threat.

Barry said credit unions have much more room to grow in the small business marketplace but it will require "a major shift from traditional credit union practices and their roots."

"Hiring individuals that understand the needs of small businesses will also be key to their success," Barry said. "The road ahead is not an easy one for credit unions, but those willing to take the necessary steps are likely to be greatly rewarded as parts of the small-business customer segment remain an untapped market rich with opportunities."

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