The following is an excerpt from a West Monroe report. Click here for the full report.
The stress test that the pandemic put small businesses through transformed their relationships with financial partners in countless ways. Some sought PPP loans to keep payrolls running. Even more relied on digital products and service delivery in a largely remote working environment. Banks were ready to meet that challenge, providing reliable services when small businesses needed them most.
With the U.S. economy picking up, banks will have ample opportunity to deepen those increasingly digital relationships. Meanwhile, government support is ending and those who received PPP loans are entering the loan-forgiveness process.
These headwinds prompt numerous questions for banks, many of which have struggled historically to effectively service small businesses. How are the needs of small businesses changing and how can banks better serve them?
West Monroe surveyed 401 small business owners across a range of industries to find the answers to those questions. We uncovered three key takeaways and analyzed what banks can do next to optimize their small business offerings for a post-pandemic landscape.
- As COVID-19 ebbs, small businesses trust their banks more and are content with a range of services—in large part because banks successfully delivered on PPP and other loans.
- 82% of respondents either maintained (51%) or gained (31%) trust in their banks over the past year. Only 18% lost trust.
- Small businesses cite unresponsiveness, pricing, and a feeling that they're too small to warrant more attention as reasons they are dissatisfied with their current bank.
- 69% of those respondents said their business was too small to warrant more attention from their banker. Sixty-six percent said their financial institution is unresponsive to their needs, while 56% percent said they don't receive any special treatment (offers, fees, pricing).
- While small businesses are generally satisfied with their online banking experiences, their overwhelming preferences for digital suggest the need for improvement and growth.
- 50% said they would like to apply for their next loan or account via mobile app, and online (34%) was the second most common, while only 13% said they'd like to apply in branch/in person—3% said they'd like to over the phone.
What does this mean for Banks?
Banks have long struggled to effectively and profitably meet the demands of small businesses. In many cases, poorly conceived product offerings, mismatched operating models, and disconnected legacy technologies have made small business delivery inefficient—not to mention credit policy, procedures, and pricing strategies designed for large commercial customers. At the same time, delivering products meant for commercial customers at a scale more similar to retail banking is a real challenge.
Supporting small business growth as the economy comes back to life will be a key opportunity for banks to demonstrate their responsiveness and make all customers feel valued.
To do so, business leaders at financial institutions might ask themselves the following questions:
- Am I supporting small businesses beyond deposits and loans? For instance, respondents say their current banks support them with investment management (58%), cash management (55%), financial planning/advice (55%), safe deposit box (49%) and estate planning (6%). If your institution doesn't currently offer these services, it might be time to explore options to broaden and strengthen your relationships.
- Am I optimizing processes and leveraging automation to provide streamlined service offerings? Improving integration of technology systems and automating low-value activities can help drive better customer service for small business owners with limited time to dedicate to banking.
- Do I have pricing strategies, product offerings, and credit policies that can meet the needs of small business customers? In other words, are you making small business owners feel valued, and are your offerings to small business clients fit for purpose?
- Am I responsive to small business owners' needs? Am I communicating as effectively as I can to demonstrate attentiveness? These communications will increasingly take place in a digital environment.
Banks and many of the small businesses that use them have made it through the worst of COVID-19. They've even come out on top, creating greater trust with small business owners who saw their offerings as a lifeline. But COVID-19 was an anomaly. While it nurtured these relationships, it likely didn't change many of the fundamental issues that banks had servicing small businesses in the past. Unintegrated legacy technologies, a lack of appropriate product offerings, strategies, and credit policies, and operating models designed for larger customers still present real obstacles. This is especially true in an era of rapidly increasing expectations around digital banking, where small businesses are looking to grow in a newly livened economy.