And this brings us to our mid-year analysis, which found that among Q2 PrecisionLender customers, relationships with cross-sell produce substantially higher returns than those without. We look at ­profitability in three stages: Credit only, credit plus deposits and treasury management (which includes value-add solutions).

Our survey found that full relationships that include credit, deposits and treasury management are three times more profitable than credit-only relationships. Credit unions that can offer full-service banking solutions will not only attract new SMB relationships but will be able to drive the profitability and liquidity necessary for long-term growth.

Historically, the SMB sector has been underserved by the industry. Generally speaking, SMBs have a choice between using a retail digital banking platform (which provides an easy customer experience but lacks functions necessary to run their businesses, such as payroll and accounts payable capabilities) or using a commercial digital banking platform, which is overly complicated for the small-business owner.

Consequently, many SMBs have been caught in the middle, wanting a digital platform that gives them the business functionality they need with the ease of the platform they're used to from their personal banking experience.

Finally, advancements in digital technology are enabling credit unions to build experiences and solution sets that are right for SMBs, opening opportunities for credit unions to get into the commercial banking market.

Offer a Single View Solution

When we speak with small-business owners about what they want from their financial institution, they say they want a single view solution where they can access their personal and business accounts with one login. It's what we used to call "one pair of pants, two different pockets."

A 2023 survey conducted by the National Federation of Independent Businesses (NFIB) sheds further light on the situation. When asked how many banks respondents use for business purposes, 55% said one, 34% said two and 11% said three or more. Of the 97% of respondents who had separate personal and business accounts, 44% used different banks.

Use Data to Drive Primacy

The key to developing a package of solutions for each type of business is for credit unions to leverage the data pertaining to their membership base. If credit unions can show their SMB members that they can handle their business as well as personal banking needs, they'll have a competitive advantage because of that historical affinity.

For decades, it has generally been known that a small business selected a financial institution largely based on branch location. Now, according to the NFIB survey, 87% say customer service is the most important. And given the preference for digital banking, the digital experience is now part of customer service. Credit unions have always had great affinity with their members but have been challenged to fully serve the members who are small-business owners. The result is that the credit union often serves personal banking needs but doesn't have the business relationship – but there's potential for growth. While the NFIB survey found that only about one in 10 business owners use a credit union for their primary business account, 2% had switched financial institutions in the past month and 5% were considering a change.

Now is the time for credit unions to get their foot in the door and push it open. Historically, the banking industry has approached their customers from the inside out: Telling their customers what they offer and leaving it to the customer to figure out how to make the offering fit their needs. Because credit unions are nimbler and can move more quickly, they can offer services and products based on the actual needs of their SMB members – building from the outside in. By embracing new technology (including fintech solutions) credit unions can offer the solutions they need in a digital experience that is tailored for them.

The critical component is data: Traditionally, neither banks nor credit unions have been particularly good at leveraging data to understand and anticipate the needs of their member base.

Cross-Sell to Generate Non-Interest Income

Although the small-business sector is traditionally extremely fee averse, fintechs have shown that small businesses are willing to pay for value. The way to cross sell to small businesses is to demonstrate how the service will save them time and money and bundle solutions together in an easy-to-use package.

Let's look at electronic payments as an example. Many SMBs don't understand how they work and have neither the time nor the interest in understanding them, and the segment is notorious for writing checks. According to a PYMTS study, 81% of companies occasionally use paper checks to pay other businesses.

They're comfortable with doing things the way they always have, even though adopting electronic payments would be beneficial to their business. The problem is financial institutions can't sell SMBs on electronic payments in the same way they do large businesses (where treasury management officers go out in the field and explain how to set up and use ACH payments) because it's not economically scalable – and SMBs prefer to research and buy products online.

Cross-sell of traditional commercial cash management solutions is difficult because they are designed and built from the banker's perspective, and SMBs aren't looking to be better at banking. They're looking for ways to save time and money. This is where fintechs, which have done a great job of embedding payments into another process, come in. Fintechs solve problems in the context the user understands.

Now let's apply that principle to cross-selling solutions to small businesses. SMBs will adopt electronic payments and other banking products when they are presented as a package of intuitive solutions that provide real value. The most recent Global Fintech Adoption Index found that 56% of SMEs use a fintech banking and payment solution.

Again, the critical component in a successful strategy is leveraging data pertaining to SMB members and designing solutions that meet their needs.

Now is the time.

Dean Jenkins

Dean Jenkins Vice President, Product Marketing Q2 Austin, Texas