A Method for National Banks to Leverage the SMB Marketplace In the Process, Increase Customer Loyalty, Drive Growth, and Build Durable Competitive Advantage.

Executive Summary:

The SMB market is a large, and largely under penetrated for financial services. Given the need for growth, it is not surprising to see large national banks investing in the small business market. However, nearly all the investment made by banks has been in building the business development function while the underlying financial products remain unchanged and largely undifferentiated from their competitors.  In this article, we propose an engagement model where banks could use an internet platform technology in combination with their current assets to build a more valuable, higher leverage relationship with small businesses that also enhances their traditional financial products.

Background:

With constrained opportunity for growth in other markets, banks are increasingly targeting the small business market as a growth opportunity.  Bank of America, for example, announced that it is has made a major investment in the SMB marketplace with the hiring of over 1000 small business bankers.  Most of the other major banks are following suit.  Beyond competing with each other, larger national banks face their largest competition from smaller community banks who have traditionally focused on this market segment.

Despite all of this investment, from the point-of-view of the small business owner, innovation in their core financial products has been stagnant. Checking account, savings account, merchant services, etc, are largely  undifferentiated and do little in the way of helping SMBs run their business The fundamental differentiation points seem to be:

1. Small Banks Claim: “We are local with local decision-making and by the way we are friendlier.”
2. Larger National Banks: “We are large with more services and you can grow with us.”

Capital injection through loans can obviously impact a small business greatly, however most SMB owners with good credit profiles can shop around for the best terms. If you are a marginal loan risk, there might be some advantage with your current banker, but you might as well go to next-generation lending sources such as Kabbage.  Finally, because of the convenience, small business owners are increasingly migrating to non-bank sources such as Paypal for simple financial/payment services. National Banks need a compelling reason for the small business person to engage with their brands.

Proposal:

So how can large national banks provide a compelling solution to their SMB customers?  Let’s first take a look at the characteristics of the SMB marketplace.

The SMB marketplace is a massive (over 28 Million in US alone), and has significant needs which can be addressed by the  banking community. Based on our research, SMB decision makers have the following characteristics:

1. Very Busy and Time Constrained.
2. Older and not comfortable with technology (especially internet technology), but recognize the need to imperative to engage on the Internet to get to their customers.
3. Highly interested in methods to grow their business, however they feel like they are the row-boat in the ocean. They are looking for partners.
4. Looking for affordable services to offload their time and gain access to expertise.
5. Looking for a face-to-face interaction model.
6. The vast majority do not have a mobile-optimized website, nor the knowledge to leverage the internet more fully for their business.
7. The vast majority of SMBs are providing local services so product oriented platforms such as Amazon/Ebay fall short of being very useful..

What assets do the national banks bring to this marketplace?

1. Strong brand with unique access to the small and medium sized business market
2. Nationwide local retail presence
3. Trusted and well trained staff with familiarity of internet services

How can these assets be used to build a more valuable relationship with SMBs?

Imagine a cloud-based platform (let’s call it SMB-Core for now) where SMBs can either through a self-service portal or working hand-in-hand  with banking staff easily build a sales/marketing and operations infrastructure for their product or services business in under a half hour.The cloud platform would provide the SMB:

1. Home-page web presence optimized for user interaction, search, and mobile devices.
2. Ability to build Offerings which can handle products as well as complex services working models (scheduling, questionnaires).
3. Advanced capabilities which leverage CRM and Sales data for data mining and analytics. 
4. Capability for SMBs to network with each other to propagate trust and build larger value statements for the customer
5. Connections to the other standard cloud-based platforms used by the business (constant-contact, quickin, etc)
6. Finally, a connection to standard banking services such as checking account and merchant services.

With such a platform, banks can build a strategic and operational relationship with the SMB customer with several significant differentiating features:

1. SMB customer will value the core capability, and once adopted, the system will become part of the core process flow of their company.  Bank will be seen as the foundational underpinning which enables their business.  Bank could charge for this capability ($25 to $50/month) or monetize through other business models..
2. With all of the data collected on SMBs through the platform, banks can actually have better information to make better financial decisions for the SMB customers.  It is a continuous feedback loop on their relationship with the customer.
3. As the customer updates his/her marketing approach, they will ask for updates on their internet infrastructure, this creates many value-added touch points with customer to sell other goods/services. This is higher value method to capture customers for banking services as opposed to the current method of bankers cold-calling small business customers.

The strategic implications of the above approach are significant:

1. National Bank brands are leveraged in a market (SMB) where they already have brand equity
2. SMB customers crave physical contact which is a good customer retention tool, and the perception of business knowledge of staff reinforces the engagement.
3. Bank can now promote services along with its products for a complete solution.  This will not only create incremental high-margin revenue, but also fortifies their traditional financial products business.

At Ocoos, we have been tirelessly building such a platform to help SMBs successfully grow their businesses. We have a fast, simple and powerful cloud-based solution that can bring significant efficiencies to a very large fragmented arena.  For more information on the solution, please contact  [email protected] .