Small businesses in the US prefer traditional banking services and still rely heavily on branches, according to a new study by US-based financial researchers BAI and software provider ARGO.
Small Business Demand for Banking Services: Growth and Profitability Considerations suggests that branch cutbacks might have adverse effects with small businesses if not properly planned.
According to the study, financial institutions that can provide superior service to small businesses at the branch can achieve a definitive market advantage.
Debbie Bianucci, president and CEO of BAI, said: "As the financial services industry seeks to attract, retain and grow their small business relationships, these findings are critical in shaping strategic priorities.
"This research tells us that banks have the opportunity to differentiate themselves in the market through the development of creative strategies around how the branch can be used more effectively and efficiently to service this important segment within the context of cost containment initiatives."
Other findings of the study include:
– Small businesses continue to interact with and transact at their branches. More than half of all business transactions are conducted at a branch. Small businesses also show a strong preference for in-person and live agent phone conversations with their financial institutions, which drives them to greater branch usage;
– Unlike retail consumers, the research found that less than 25% of small businesses surveyed use mobile banking with only 8% using mobile bill pay. This should not be surprising as only 20% of respondents indicated that they prefer online over in-person banking;
– While satisfaction with their primary bank overall came in at a strong 75%, the study found that small business customers generally give their bank low marks for loan and investment products they are offered. This is an interesting perception gap as additional BAI Research indicates that bank executives feel they are meeting the needs of their small business customers as it relates to loan products and services;
– Small businesses are very sensitive to fees and value them much more than other innovations, rates or rewards programmes. Many of the businesses in the study try to avoid fees unless it is a necessity or they can justify the fee on the basis of the value obtained. Just under half of them indicate fees are a main consideration when choosing a financial institution, meaning that higher fees will most likely affect their decision to switch banks, and
– Small businesses are traditional in their cheque usage, with over half of them indicating that it is their preferred payment method. Along with creating an easy-to-follow paper trail, cheque processing is entrenched in the customers’ accounting and payables systems.
Todd Robertson, senior vice president of ARGO, said: "Banks that can provide superior service at the branch-level can attract and retain small business customers.
"With the right tools and training, frontline bankers can better engage small business owners and improve service by offering them the right product at the right time."