Five Strategies for Staying Relevant

 Author: Deborah Matthews, debmatthews@jackhenry.com

Staying relevant in the current rapidly changing business environment is no easy task.  Just ask Blockbuster and Kodak.  Once their products were in great demand, their brands universally recognized and respected - today, both are on the brink of extinction.

Community financial institutions are also being challenged to remain relevant.  FIs face unrelenting regulatory pressure and a growing number of legislative mandates that impact revenue generation, escalating competition from large banks and non-traditional providers, an increasingly transient customer base and a frenetic pace of technological advances. This dynamic landscape makes it difficult at best to filter through the noise, to be able to recognize strategic opportunities that support long-term viability and profitability. 

In order to enjoy sustainability, it is imperative to proactively anticipate the future by embracing new ideas, employing new methods and identifying new markets.  FIs must deliver innovative solutions that solve pain points and create value for which customers will pay.  It is clear from recent events that consumers will not easily tolerate more bank fees. FIs must generate new fee revenue from a segment that is willing to pay for beneficial value, increased efficiencies, convenience and improved security.  The answer is the small business market (SMB).

According to the Small Business Association, there are 27+ million small businesses in the U.S., representing a large, lucrative market for FIs. In fact, Dun and Bradstreet reports that the number of small businesses actually increased during the recent recession.   An essential part of the fabric of American life, small businesses generate between 60 and 80% of all new jobs created. 

Many FIs are already focusing on the SMB market, yet most are falling short in meeting the needs of small businesses.  Even though small businesses spend $500 billion on financial products, recent research reveals they are underserved by FIs.  Barely one-third are satisfied with their FI’s online banking capabilities.  Ninety percent use a consumer online banking platform. A mere 25% feel their FI offers adequate tools for managing cash and tracking receivables and payables. Seventeen percent of business owners confess staying up at night worrying about cash flow.

For FIs interested in long-term relevancy, addressing this deficiency is urgent for two reasons: 

1. The National Federation of Independent Business said confidence among small U.S. business owners  in January rose to 93.9, the highest level since December 2007. This means SMB are poised for growth. 
2. SMB are becoming increasingly technologically savvy, with half stating that they would switch their bank in order to access better financial tools.  FIs that fail to offer these tools in order to retain SMB customers do so at their own peril: while the SMB segment represents only 10% to 12% of retail banking customers, they represent as much as 50% of retail bank revenue when taking into account the value of the small business owner’s account.

Here are 5 strategies for launching your SMB initiative:

1. In a recent report, Aite Group recommended that FIs develop a strategy for migrating businesses off consumer platforms and onto systems designed specifically for businesses.  
2. The SMB market is diverse and complex.  Specialize in a few specific vertical markets to gain expertise in their business models and requirements.
3. More than 1/3 of small businesses rank collecting payments as their top priority, and they are keenly interested in improving cash flow and creating operational efficiencies. To win the hearts and minds of your small business customers, position the convenience and ease-of-use of remote deposit capture (RDC) as the keystone of your SMB product portfolio.  Today, only 8% of SMB are using RDC, representing a huge missed opportunity to promote beneficial services to a receptive audience.
4. FIs should further transform strategy into reality by enlisting front line and business development staff to proactively market products and services that deliver significant value, such as RDC.  Branch originated sales leads accounted for less than 25% of all RDC leads. This is truly a case of FIs leaving money on the table. Educate your team on the requirements of your targeted SMB and build an arsenal of winning products and services. Helping your customers achieve success can translate into sustainability for your FI. 
5. Another highly desirable service for SMB is electronic invoice presentment and payment (EIPP).  According to the US Postal Service, businesses in the U.S. spend as much as $35 billion annually on printing and postage for bills/invoices and typically send 48 billion account notices, statements, and bills to customers each year.  SMB spend as much as $11 - $15 to generate a single paper invoice, versus “pocket change” to send an online invoice.  EIPP can also reduce the length of time required for generating and delivering an invoice from 8 days for a paper version, to 3 days for online invoicing. EIPP can make a meaningful difference in collecting receivables and improving cash flow for SMB. 

This is just the beginning.  Once you have identified your target market, mastered your SMB expertise and gained their trust, it becomes easier to cross-sell other products and services, ultimately deriving increased profitability from a now-satisfied customer base.