Aggressively seeking the membership of small businesses has not traditionally been a strategy for most credit unions. In fact, though financial institutions of all types and sizes increasingly recognize the potential revenue associated with winning the business of this segment, only approximately 8% of U.S. small businesses consider a credit union to be their primary institution. Several opportunities exist, however, for the 45% of credit unions that Aite Group estimates are likely to adopt a more commercially focused strategy during 2010.
Perhaps one of the greatest opportunities for new member growth is among small businesses, a segment hit particularly hard during the financial crisis. One of the greatest challenges currently faced by small businesses is gaining access to the funds necessary to finance their day-to-day activities and stay afloat in the current economic environment. The financial crisis and resulting recession have led many institutions-especially the largest ones-to tighten their credit policies. Fewer small business loan approvals by banks resulted in the Small Business Administration backing 36% fewer 7(a) loans during its 2009 fiscal year than it did the previous year. Further, all but one of the SBA's top 10 lenders in 2008 (Wells Fargo) decreased their 2009 volume of SBA loans by at least 30%. This creates new opportunities for credit unions that have been able to maintain, and in some cases increase, their loan origination volumes throughout the last two years as a result of conservative lending practices and avoidance of subprime lending. Since most small business-financial institution relationships begin with a credit product, the potential for credit unions to attract new members through lending has increased, despite the legal limits credit unions have on member business loan volumes.
The business case for credit unions to pursue new small business membership is further strengthened by declining satisfaction rates of small businesses banking with large banks. One survey of 283 U.S. small businesses found that 70% of businesses said they were "disappointed" with their large global and regional U.S. banks. Additionally, 31% of disappointed businesses stated they "definitely" or "probably will" switch to a new financial institution over the next two years. The No. 1 consideration for small businesses selecting a new financial institution is service, opening a door for credit unions that believe they excel in this area. By implementing the right strategies and deploying the necessary technologies to enhance service levels and meet business member needs, many credit unions will be able to win the business of these companies.
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While tight credit and falling satisfaction rates are creating new opportunities for credit unions to grow their business member bases, these opportunities will not be enjoyed without greater effort and focus on the small business segment. Those credit unions likely to see the greatest success during 2010 will make technology a top priority at their institutions. Business analytic technologies, for example, will provide new insights into business member needs and enhance credit union capabilities for cross selling. Remote deposit, too, would enable credit unions to extend their geographic footprints while compensating for small branch networks. Additionally, investment in the online channel and online business banking applications will play a crucial role in enabling credit unions to move beyond serving online micro businesses and better meet the needs of new business members. Serving business members will require business banking products and online banking capabilities such as electronic bill pay, positive pay, entitlement capabilities, and online account opening. Finally, technologies that enhance credit unions' risk and credit management operations, as well as fraud prevention solutions, will enable these institutions to continue to grow their member bases without taking on increased risk.
Though many believe the U.S. is coming out of the recession, the financial services industry is not likely to see dramatic changes in its servicing of small businesses during 2010. Many banks are still under the close watch of regulators and stockholders, keeping them distracted and less focused on providing the high levels of service that small businesses require. Despite government efforts to unfreeze credit, small businesses continue to struggle to get necessary funding and continue to believe that banks, especially the largest ones, do not understand their needs. As such, 2010 promises to present continued opportunities to those credit unions willing to seize the moment.
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