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PCBB Banc Investment Daily August 21, 2014
Banc Investment Daily
August 21, 2014

Making For Stickier Small Business Customers

You may not know it but there are more than 300 unique types of honey with varying colors and tastes available in the U.S., according to The National Honey Board. Generally speaking, light-colored honeys have a milder taste, while darker honeys are stronger-tasting. The taste of honey depends on the flower source, as well as rainfall and temperature of that region. So, the next time you're drinking a spot of honey in your tea, you might want to ponder that. Other than flavoring your tea, sticky-sweet honey can be used to soothe sore throats and calm stubborn coughs, and because of its moisturizing qualities, it's used in some skin care products.
Stickiness is applicable to customers too. Community banks are always looking for ways to make customers stickier because there is considerable research showing how fickle they can be. Keeping customers is an ongoing concern in the banking industry, particularly when it comes to small business customers.
To explore this further, we examine a recent Aite Group white paper, Banking on Small-Business Needs, that analyzed survey data gathered to help identify bank portfolio gaps and opportunities. Despite the obvious benefits of catering to this large segment of customers, many banks are still coming up short when it comes to providing them the services they want.
For instance, the survey data showed many banks don't offer small business owners the ability to easily track income and manage outgoing cash. Nor do many banks give these customers the capability of estimating future funds to make better investment decisions, or offer a system to help collect receivables. Yet, these are all services small business customers want.
It is interesting to note that according to the survey, banks collectively are so lacking in these areas that approximately 33% of small businesses work with nonbank providers who do offer these services. This opens a huge door to unregulated competition and it trains customers to look elsewhere for solutions. To slow this migration, banks should consider speeding up delivery of the user-friendly solutions customers want, according to Aite.
The same survey also explored why 80% of small businesses don't use their bank's online banking and cash management site to manage their finances. The survey found those who did, often sought out alternatives because their bank's site did not integrate with their company's accounting software. Further, bank software often did not provide a complete picture of forecasted cash flows or a consolidated view of account information.
As the survey indicates, banks that downplay the importance small businesses place on these services are likely making a mistake. In fact, they are of such importance that a good number of businesses say they would entertain leaving their primary bank to get them. The survey found approximately 36% of small businesses said they would switch banks if offered a premium package of online services, including accounts payable and receivable tools, direct integration with accounting software and cash flow forecasting capabilities.
We've said this before, but it bears repeating. Customer activities and expectations are shifting due to technological advancements that make managing their business easier. To keep customers in the fold, community banks should offer the services that matter to them. If not, there's no shortage of providers popping up who are prepared to step in and fill the void.
While there is certainly a cost to beefing up your small business offerings, it can also help your business bloom. As we buzz away this morning we offer this final thought--may the sweet taste of honey flavor your customer acquisition and retention efforts.