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Digital Banking

Winning Business Banking Relationships in Age of Fintechs

Melanie Reneris
Jul 8, 2024

When it comes to serving business banking accountholders, community banks and credit unions have good reason to celebrate: Businesses identifying a community bank or credit union as their primary financial institution are far more satisfied than those using a larger bank, according to a recent Javelin study.

That impressive satisfaction rate – 90% among their business banking accountholders – also leads to a higher share of wallet and decreased likelihood of the business switching to a different institution.

Unfortunately, the satisfaction and retention of existing business accountholders isn’t translating into the ability to attract newer businesses. Of companies formed within the last five years, only 8% identify a community bank or credit union as their primary FI, meaning that 92% chose a larger institution.

With a record-breaking 5.4 million new business applications filed in 2021 alone, this means that community banks and credit unions are missing out on opportunities to acquire, nurture, and grow businesses – and your bottom line.

Attracting the Full Spectrum of Business Relationships

While the banking needs of a business vary greatly across its lifecycle, there are concrete steps and technologies that banks and credit unions can use to both attract and retain business banking relationships.

  • Sole Proprietors need just a bit more from their account than the average consumer. Consider adding what Javelin calls a “tweener” product, designed to help new business owners transition from running their business out of a personal account. Light on business-specific functionality, these accounts need access to basic transactional functions with 24/7 digital banking, including electronic invoicing.
  • Small to Medium Businesses (SMBs) are looking for more in their business banking relationship, but without the steep price tag that often comes with commercial banking services. To capture the hearts (and wallets) of SMBs, focus on providing a business banking relationship that includes:
    • Embedded invoicing, receivables, and digital payment acceptance.
    • A strong payments hub that helps growing businesses take advantage of real-time payments and low-cost routing.
    • A low-friction digital lending portal that helps businesses borrow to manage cash flow needs when the timing is right.
  • Medium to Large Businesses require their financial institution to deliver more than transactions. These business banking relationships need to provide data and insights that improve the long-term cash position of the business, allowing them to take advantage of advanced financial accounting and cash management practices, and treasury and risk management capabilities, plus sophisticated funding options. These businesses expect to pay for the financial technology and tools that support informed decision-making and create efficiencies for their employees.

Managing these varied business banking relationship needs can seem overwhelming, especially if your bank or credit union is relatively new to the commercial banking market. However, with the right tools and tech stack, it can be easy to attract and serve business accountholders across their life stages.

Business Banking Across the Board

Despite needing different tools at different times, all businesses need help attaining financial health and stability. You can become their financial hub by focusing on a few key areas:

  • Financial Guidance and Advice
    More than three-quarters (76%) of SMBs are interested in receiving financial advice from their bank or credit union. But only 15% report receiving “comprehensive advice,” according to the 2022 U.S. Small Banking Satisfaction Study from J.D. Power. Of particular interest is guidance on how to reduce banking fees, tips to improve their financial position, and the desire to better understand how the institution’s technology can benefit their business.

    Beyond one-to-one counseling and advice, ensure your technology provides businesses with the opportunity to see their current cash position and spending categorization, while identifying potential cash-crunch situations so they can make informed financial decisions.
  • Digital Banking and Service
    Remember the 92% of young businesses that selected a larger bank as their primary financial institution? Javelin suggests that the digital-forward offerings of these larger banks may align more closely with the needs of newer businesses and account for their dramatic success in acquiring the primary relationships of newer businesses.

    Community banks and credit unions can work toward closing that gap with an end-to-end digital banking strategy that leverages a scalable digital banking platform. Offer the expected transactional capabilities – on mobile as well as a desktop – plus cash flow tools, embedded invoicing, and core-connected digital accountholder service as a baseline digital offering for your businesses. Then enable additional features and functionality as the business grows, providing a consistent platform and experience for your accountholder – and revenue opportunities for your institution.

  • Addressing Payments Needs
    The need to accept multiple payment types to effectively manage sales is a challenge for businesses of all shapes and sizes. It’s not uncommon for businesses to accept five or more types of payments. These include more traditional options like cash, checks, cards, or ACH – along with newer options like cryptocurrency, P2P, real-time, or contactless payments. In fact, 84% of users now make purchases from businesses with contactless or P2P payment options.

    As a result, it’s essential for your bank or credit union to support a variety of payment options and educate your businesses on using faster payments to improve cash flow. Deploy a payments hub that utilizes intelligent payments routing, and then embed invoicing and contactless payment acceptance tools into your digital banking platform. This will give businesses clarity and control over when payments will be sent or arrive.

  • Enable Digital Origination
    Whether the need is for a new deposit account, a business loan, or a line of credit, today’s businesses want to move quickly and efficiently through the origination process. To deliver on that desire, look for deposit origination and lending platforms that integrate seamlessly with your digital banking and core systems. This will free businesses from re-entering information you already have on file and enable them to apply from within a channel they’re already using daily.

    Also, keep in mind the estimated $5 trillion dollar funding gap between the financing needs of SMBs and the institution-based financing available to them. While working within your institution’s risk appetite, consider offering more loan types or determine whether the use of alternative data or AI analysis in underwriting would allow you to expand your market. Or determine whether developing a strategic relationship with a fintech to embed alternative origination capabilities within your digital platform would allow you to remain a one-stop-shop while managing risk.

Serving the Needs of Diverse Businesses

Whether you have an established business banking strategy or are entering into a relatively new market, the right technology and vendor relationships can make or break your success.

Learn more about how Jack Henry™ helps banks and credit unions attract and grow commercial accountholders.

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