engaging more effectively with soho and small business

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Market demand for non-traditional services that banks could provide to their SOHO and Micro-business customers

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  • 1. Engaging More EffectivelyWith SOHO and Micro Businesses www.athpower.com Research Addendum to: The ath Power Small Business Banking Study By Michael J. McEvoy, Managing Director
  • 2. 2 Engaging More Effectively with SOHO and Micro Businesses TheathPowerSmallBusinessBankingStudy This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of its contents to third parties without written permission of ath Power Consulting Corporation. 2012 ath Power Consulting Corporation.
  • 3. 3 KeyTakeaways Many SBOs in the micro business / sole proprietor segment view a significant proportion of the services provided by banks as largely irrelevant to their business needs The segment is largely underserved by banks, with fewer than 1 in 3 SBOs assigned a relationship manager (RM) and only minimal contact with many who are assigned an RM Almost 2 out of 3 of these SB customers often use their personal checking accounts for business purposes, while almost one-half fund business purchases with their personal credit card Fewer than 1 in 5 small business customers are very satisfied and almost one-half are neutralon the question of whether their bank understands their needs and challenges Distinguishing between SB offerings of competing banks is a challenge for business owners: almost 75 per cent of those surveyed considered their banksproduct and services offerings assomewhat similarorvery similarto those of other banks A collection of best-of-breed tools, provided as a service bundle that would help the business owner manage and grow their business, would appeal to a majority of SBOs Providing online webinars / workshops would allow for a deeper engagement with the SBO with obvious potential for enhanced loyalty and retention A majority of SBOs see their bank as a credible provider of non-traditional services such as those envisaged in this paper, and more than 1 in 4 would consider switching to a bank which offered them By proving to SBOs they truly understand their needs and are motivated to serve them, banks will likely improve loyalty and retention, while in the process attracting new customers away from competitors unwilling to let go of dated business models. This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of its contents to third parties without written permission of ath Power Consulting Corporation. 2012 ath Power Consulting Corporation.
  • 4. 4 Q. When you were first opening these accounts, through what sources did you learn about the banks business products and services? Introduction TheDisconnectWithOwnersofSmallBusinesses U.S. banks have traditionally struggled to serve smaller businesses (defined here as businesses with annual revenue of under $400,000) and the experience of the past 4-5 years has, if anything, witnessed an even greaterdisconnectbetween banks and small business customers in this segment typically sole proprietorships, micro-businesses and start-ups. Although large in number, these smaller businesses provide a formidable challenge to banks seeking to serve them profitably, efficiently and with relevant products and services. The segment is therefore often underserved or largely neglected by banks and other financial institutions. Despite the fact that visits to the branch are at the core of the small business relationship from inception (Figure 1) and continue to be the most important means for business owners to learn what the bank has to offer them (Figure 2), banks do not fully leverage the opportunity to meet with small business owners (SBOs) when business customers visit the branch. FIGURE 1 This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of its contents to third parties without written permission of ath Power Consulting Corporation. 2012 ath Power Consulting Corporation.
  • 5. 5 What I Want In a Bank: Someone to listen to our needs and help us reach our goals. - Small Business Owner (Technology Company) n=567 Q. What is the primary way you learn about the products and services that a bank can offer your business? FIGURE 2 This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of its contents to third parties without written permission of ath Power Consulting Corporation. 2012 ath Power Consulting Corporation.
  • 6. 6 Banks provide fewer than 1 in 3 SBOs with a business relationship manager (Figure 3) and even when they do, many business owners report only minimal contact with their assigned banker (Figure 4). There is clearly room for improvement in the level of engagement with business customers. The economics of small business banking may not allow for individual attention to most SBOs on an on-going basis, but there appears a clear need for the relationship between owners of smaller businesses and their bank to assume a different form from todays model. FIGURE 3 n=166 Q. Approximately how often have you met with your business relationship manager? n=568 Q. Do you have a business relationship manager assigned to you for your business banking needs? FIGURE 4 This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of its contents to third parties without written permission of ath Power Consulting Corporation. 2012 ath Power Consulting Corporation.
  • 7. 7 IrrelevantProducts A source of thedisconnectmentioned earlier are the products and services offered by banks and their relevancy to the small business customer. Most SBOs have little need for more specialized services such as cash management, tax, payroll or merchant services (Figure 5) yet many bankers choose to promote them to their small business customers without learning enough about the business, its stage of development or its current needs. Indeed, many SBOs view such specialized services as largely irrelevant to their business needs (Figure 6). FIGURE 5 FIGURE 6 Q. PLEASE INDICATE WHETHER OR NOT YOUR BANK OFFERS EACH OF THE FOLLOW- ING BUSINESS ACCOUNTS OR SERVICES AND IF YOU USE IT. Q. How relevant do you feel that these products and services are for managing and growing your business? This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of its contents to third parties without written permission of ath Power Consulting Corporation. 2012 ath Power Consulting Corporation. What I Want In a Bank: A bank that is sincerely interested in me/my business as a customer! - Small Business Owner (Real Estate)
  • 8. 8 Use of Personal Accounts for Business Even basic business banking products are shunned by some business owners, as they choose instead to use their personal banking products for checking, debit and credit card business needs. Our study finds that almost 2 out of 3 SB customers often use their personal checking accounts for business purposes, while almost one-half fund business purchases with their personal credit card (Figure 7). The use of personal banking products for business purposes occurs even when the SBO holds a business product equivalent: for instance, 42% of SBOs who use their personal DDA for their business also have a business checking account. Some business owners may fail to see any real difference between the retail offering and the business equivalent other than the fact that fees associated with business accounts can be significantly higher. While the difference between certain personal and business products may be blurred for some SBOs, distinguishing between SB offerings of competing banks is an even greater challenge: almost 75 per cent of those surveyed considered their banksproduct and services offerings assomewhat similarorvery similarto those of other banks (Figure 8). FIGURE 7 FIGURE 8 Q.Which, if any, of the following personal banking accounts do you often use for your business (e.g. for business purchases)? Q. How similar are the products and services offered by your bank to those offered by other banks you know of? This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purp