Capco Blog

The key to attracting small business clients

In recent months, the banking industry has experienced a substantial increase in small business lending. This trend of investing in small businesses offers banks an opportunity to make operational changes to attract and retain customers and grow their own business.

The small business market is typically divided into two segments: companies with less than $1 million in sales, and companies with $1 million to $10 million in sales. Businesses that fall within these two segments are among banks’ most profitable customers. A high degree of cross-sell opportunities exist, from providing 401(k) services to managing payrolls to offering wealth and investment products. Small businesses also tend to be closely tied to their local banks, making this market segment fertile ground for the banking sector.

Two issues seem to be driving the recent uptick in small business investing. First, banks that have experienced attrition in this high-profit margin segment are playing catch-up and working hard to attract new customers. Second, banks that are seeing a migration of new small business customers or have been successful in retaining the clients they have are doubling down on their efforts to keep those customers happy and grow their business in this area.

The challenge for banks, however, is that few of these high-demand small business customers seem satisfied with the service they receive from their banking partners. Poor customer service and failure to resolve problems quickly and courteously is the No. 1 reason for the high fluidity with which small businesses switch banks. High fees, failure to recognize customers’ full value, a mismatch in product offerings, and inconvenient banking locations can also contribute to a small business’s dissatisfaction with its bank.

There is no one-size-fits-all approach to attracting small business clients, of course, but banks that wish to grow their clientele in this segment need to understand the dynamics of their relationship with these customers. What drives their profitability? What cross-sell opportunities exist? What is the bank’s retention strategy for keeping small business clients happy?

To successfully attract and retain small business customers, banks need to invest in leading-edge sales and service offerings, including mobile. Develop a seamless, responsive, high-touch service strategy for small business clients. Offer multiple tough-point channels and service integration.

Banks also need to recognize the full value of their relationships with small businesses beyond just offering individual products. Siloed banks that try to maximize the profitability of each and every product are likely sub-optimizing their overall relationship with their customers. Instead, banks need to integrate services and offer price structures that value the customer relationship more than the product sale.

Banks that can stay ahead of the curve and in front of their small business client needs have a better chance of retaining and growing their customer base in this segment.

What do you see as the key to banks’ efforts to attract small business customers? Join the discussion. Click here to comment on this blog post.

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