After years of receiving little unique attention from financial services providers, small businesses have emerged as the ‘sweet spot’ for the financial services industry. The size of the market alone makes it attractive – industry analysts estimate that there are more than 10 million small businesses in the United States, with the number growing at a rate of about 5 percent annually. In addition, small businesses generate more than $200 billion in financial services revenue per year and can be up to 10 times more profitable than the average consumer.
Unfortunately, when banks attempt to meet the unique banking needs of its entire customer base, most small businesses fall through the cracks. These businesses require services and products that differ from the online retail services traditionally offered to consumers. But as economic conditions continue to drive down interest rates and produce smaller spreads, banks are being pressured to find new ways to generate revenue, and the lucrative small business segment is finally getting the attention it deserves. But serving this market, one that is ripe and ready for financial services, will take a dedicated and centralized strategy that looks at all products and delivery channels.
The Financial Services Industry Council (FSIC) recently surveyed executives at several banks regarding their strategies for serving small business customers. While these banks report widely varying strategies for targeting small business customers, all of them see the significant bottom line benefits. In fact, many of the banks that were surveyed said that small businesses will account for as much as 30 percent of their total bank revenues this year.
However, for all the attention on the small business market, most banks are only scratching the surface of the potential this group represents. Small businesses are diverse with varying financial services needs depending on a company’s size, industry and other company dynamics. Winners in this arena will be the banks that develop a deep understanding of their small business customers and work hard to develop the entire relationship, from the business banking to the personal banking needs of the business owner, as well as the small businesses’ employees.
Until recently, it has not been feasible for banks to implement a true market segmentation strategy with their customer base, let alone address the specific needs of their small business clients. Siloed channels and disparate data sources have hindered banks’ ability to see their full relationships with their customers. And customers’ perception of banks had been eroded by irrelevant, repetitive offerings and inconsistent experiences across various channels and with every interaction with their bank.
The ability to cost-effectively create customized products and pricing strategies for unique segments within their customer base seems impossible, because many banks don’t have a single view of their customers across business and personal banking needs, much less understand their channel preferences. In fact, a study conducted by Forrester Research indicated that 68 percent of the banks don’t know which channels customers use. And even if they do understand their customers’ needs and preferences, the cost of customizing products for distinct market segments – and then rolling them out across all channels – can be staggering