Must Banks Give Away Their Small Business Franchise

Almost every working day, 26 million small business owners visit their bank. Usually this is to make deposits, withdrawals or to check balances. But in the course of this banking relationship, businesses also use a myriad of other financial services. And unlike the banking relationship of major corporations, the banking relationships of small business owners mirror their personal banking relationship. Often this results in an emotional as well as a financial bond. For small businesses, their bank is their core financial channel. In essence, the bank owns the small business segment. This is especially true for smaller banks--the community and middle-tier institutions--because of their proximity to their small business customers. But the smaller bank's traditional small business franchise has been under heavy siege by non-bank competitors, such as American Express Small Business Services, and a relationship can only be owned as long as it fully satisfies the needs of both parties. Competition can erode small business relationships Non-banks covet many traditional banking services offered by banks to their small-business customers. Aggressive efforts are also being made to solicit loans, an area that contributes substantially to revenues. Larger banks are soliciting small businesses for loans and other services using direct marketing, sometimes built around credit cards and direct solicitations, and are now aggressively using Web channels for that solicitation. Small wonder that smaller banks often feel they are being attacked from all sides. There is a statistical correlation between the number of financial services used by a customer and account retention. The odds of retention are increased exponentially with each additional service. Therefore, selling additional services to small business customers is not only desirable but also essential to continued growth and profitability. The question then becomes, If larger institutions and nonbanks are trying to pirate my small-business customer, how am I going to protect my franchise, much less increase it? The answer is to use all the resources readily available and to be open to new and innovative ways of serving your customer, like the World Wide Web. Different results require different actions The strongest tool available to smaller banks is proximity to customers. Good customer relations are labor intensive. When the playing field is level in terms of services offered and competitive pricing, personal contact will win over direct marketing every time. It is only when competitors offer superior products, prices or convenience, that banks lose their grip on the small business relations. There was a time when large bank and nonbank institutions possessed resources not available to smaller banks that gave them a competitive edge. Unlike earlier times, however, today's smaller banks have access to Internet-based technology and technology-delivered services that can level the playing field and provide a competitive advantage. By using a click and strategy, smaller banks can offer their small business customers the best of both worlds: 24/7 access to banking information and services, combined with the comfort and convenience of real bankers they know and trust. There is no shortage of technology vendors offering Internet solutions, but not all solutions are created equal. Adding an Internet banking dimension for small businesses must serve to cement the bank/customer relationship, not create a distance. This means having the ability to customize Web service offerings to fit the unique needs and interests of customers, and to make Internet business banking practically transparent from a bank's traditional brick and mortar service. The best sites serve as a portal for small business financial managers, combining core banking transactions with essential business services--and can be blended to deliver customized news, account information and transactions, access to SBA loans and financing, merchant card services, the ability to file and pay taxes, and virtually any financial transaction normally needed by a small business. …