June 16, 2013

What Do Small Businesses Want From Their Banks?

Recent survey results indicate that community banks, long proud of their high customer satisfaction rates, may be losing the edge on larger institutions.  However, there appear to be opportunities for banks of all sizes to significantly improve customer satisfaction.

An Aite Group study entitled ‘Community Banks: Maximizing the Small Business Opportunity’ indicated one-third of community banks' (defined as less than $5 billion in assets) small business customers (defined as less than $10 million in revenue) were "extremely satisfied" with their bank. (2011)  Only 17% of the biggest four banks' small business customers gave the same response--a significant difference.  However, "super regional" banks (<$50B) had the exact same percentage of "extremely satisfied" customers as community banks, indicating super regional banks are doing as well as community banks in pleasing small business customers. 

Greenwich Associates has published results of a survey of small- and mid-sized companies entitled ‘Businesses Seek the Human Touch from Their Banks’ indicating the importance of relationship managers to community banks.  Seventy percent of small businesses and 84% of mid-sized companies interact with their banks most frequently via the Internet. However, both small- and mid-sized businesses cite their relationship manager as the most important point of contact with their bank--more important than online banking by a wide margin.  The importance of relationship managers has increased among both categories of customers since a similar survey was conducted in 2009.  Greenwich has explained it as follows: “Before the start of the crisis, it was easy for companies to put their bank relationships on auto-pilot, with direct interactions initiated by companies mainly in connection with important events like loan applications, and with banks reaching out mainly in connection with new product sales. Today, companies need help solving broader business problems, and our data shows that they have stepped up interactions with bank relationship managers as part of that effort.”  However, only a third of small businesses, and a minority of mid-sized businesses, report their banks have provided needed advice on how to manage cash flow.

The results of the J.D Power & Associates 2013 U.S. Retail Banking Satisfaction Study shows that overall customer satisfaction with banks has improved significantly in the past year, though the gains are largely attributable to improvements made by big banks.
Customer satisfaction in 2013...has increased by 10 index points from 2012. The largest increase in satisfaction is in the big banks segment, which has improved in 2013 by 16 points from 2012.... While as a group big banks have historically trailed smaller banks in satisfying customers by a fair margin, the satisfaction gap between big banks vs. midsize...and regional...banks has narrowed year over year.
Another survey by J.D Power & Associates, the U.S. Small Business Banking Satisfaction Study, finds that while overall satisfaction among small business customers has increased, the level of satisfaction continues to trail that among consumers.  One bright spot is the fact that strong relationships with a primary point of contact can make a big difference:
[S]atisfaction is much higher among small business banking customers who have an account manager who they perceive "completely" understands their business than among those with an account manager who they perceive only "partially" or does "not at all" understand their business.... Among customers who have an account manager who "completely" understands their business, 47% say they "definitely will" continue to use that bank and 53% say they "definitely will not" switch banks. In comparison, among customers who say their account manager does not "completely" understand their business or who are not assigned an account manager, 19% say they "definitely will" remain with the same bank and 25% "definitely will not" switch.

Bank of America commissioned a small business survey, conducted by Braun Research in 2013, which found that only 40% of small business owners see their bankers as a source of financial advice.  Accountants, other owners, family, and financial advisors were more likely to be sought for financial advice than bankers.  (Bankers beat lawyers by just 4%, which is striking given that lawyers typically charge for such advice and bankers typically provide it for no additional fee.)  

Photo credit: Office Now / Foter.com / CC BY
The basic lesson is this: One key way in which banks of all sizes can distinguish themselves from their competitors is to add value by providing their small business customers access to the (often considerable) business experience of individual commercial bankers.  This can be as simple as encouraging borrowers to use their banker as a sounding board for the borrower's business ideas or as robust as helping a borrower plan for efficient cash flow.

Of course, bankers must be careful not to hold themselves out as business consultants or provide any assurances to borrowers, as this can result in lender liability. (But that's another post!)  

Credit: My interest in this topic was piqued by Serge Milman, the Principal Partner of San Francisco, CA based SFO Consultants which provides consulting services to financial institutions.  He has commented on this topic in his blog Optirate.


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