Finovate Blog

Case Study: Financial product usage at one small business Microbusinesses typically purchase a hodgepodge of services culled from both retail and commercial banking product lines. For example, at our own small business, we purchase 16 financial products evenly split between consumer and business products (see Table 52, below). Nine are sourced from banks, six are from non-banks, and one is a combined effort. Overall, we spend $6,700 annually in fees, interest paid, and interest foregone (for checking). But the internal costs for managing our billings, payments, and banking, are more than three times as much, an estimated $24,000 per year. We would gladly outsource these to a high-quality and VERY trustworthy third party, preferably someone with a regulatory and fiduciary responsibility to safeguard our information and assets, like a bank. Table 52 Financial Products & Services Used by One Small Business Source: Online Banking Report, 6/04         1Fees and net interest…

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Small business attitudes are changing as online banking services become easier to navigate and more useful. While it currently seems impossible to eliminate the dependence on the branch for physical deposits, with the widespread adoption of check imaging and electronic payments, most non-cash-oriented businesses will be able to bank remotely. Both PNC Bank and NetBank have announced plans to equip their business customers with paper check scanners that will allow the remote deposit of paper checks. But even the best website and product offering cannot substitute entirely for the human touch. Every business should have a contact available by phone, email, or instant message. Small business owners should be treated like private banking clients. Recommended online products and services In theory, small and micro businesses represent one of the most lucrative, and relatively untapped, sources of incremental business. The reality is that businesses are difficult to reach unless you are…

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Online banking usage Up until a few years ago, small business usage of online banking trailed consumer adoption. In late 2000, 13% of small and microbusinesses used online banking compared to 16% of consumers . Three years later, online banking penetration is similar to that of consumers, an estimated 30% overall. At the largest small businesses, those with sales between $5 and $10 million, usage is now more than 40%, double the rate three years earlier. It’s likely we’ll see continued rapid growth for a few more years. Almost all (99%) small businesses are computerized, either at the business or at the owner’s home, or both (see Table 18, above) and more than 75% are using their personal computers for financial activity (see Table 21, next page). It’s only a matter of time before the majority of small businesses bank online. Looking at the 7.3 million small and microbusinesses universe,…

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Small business loyalty One consistent trait across all small businesses: loyalty. Once you land one, it takes significant upheaval, such as a new commercial loan relationship, before they make a move. NFO research indicates that 81% of small businesses use the same bank for personal and business services. And in a survey of Barlow Research clients, about 60% said they kept their personal and business accounts at the same bank. Evidently, it’s just not worth the entrepreneur’s time and energy to shop banks, unless they are in the midst of raising capital. That’s why we believe it is vitally important to establish a credit relationship with every small business customer regardless of size. However, high loyalty is not necessarily the same as high satisfaction. According to NFO, in 2003 57% of small businesses are very or extremely satisfied with their primary financial institution, up from 50% in 2002. This is…

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Types of Small Business Small business means different things to different people. For the sake of simplicity, in this report we’ll usually use the term “small businesses” to refer to the following segments: Two major classifications used in this report: 1.    Microbusiness: Basic financial needs, such as Quicken support, simple invoicing, credit card processing, bill payment, home equity credit lines, and tax reporting; usually sole proprietorships, partnerships, or S-corps (includes self-employed); often with less than 20 employees; total revenue of $50,000 to $1 million annually; total credit lines of less than $250,000. 2.    Small Business: More complex financial needs, such as accounting support, invoicing, payment processing, bill payment, commercial credit lines, tax reporting, and internal security and fraud controls; less than 500 employees; total revenue of $1 to 10 million annually; total credit lines more than $250,000. Other business types included in above classifications: ·      In-formation Business: Initially, may be…

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  Introduction     Table 1 Strategic Imperatives for Small Business Success 1.       Identify small business owners within your consumer base and market 2.       Facilitate contact with a human at the bank 3.       Begin a credit relationship with the business 4.       Bank the personal business of the business owner 5.       Provide value-added services for a fee Source: Online Banking Report, 5/04   The purpose of this report is to help financial institutions use online delivery to increase sales, profits, and market share in the small business market. Although, much of the report is applicable to large and small businesses, our main focus is on the smallest segment, the self-employed and so-called microbusiness, businesses with less than $1 million in annual sales. For the sake of clarity, we’ll use the term “small business” throughout this report.   We’ll look at the market through the eyes of a financial institution product manager, the…

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 Oft-overlooked segment is lucrative online opportunity With more than $2 trillion in assets and liabilities up for grabs, the small business market remains attractive to financial institutions of all sizes. Smaller businesses are the lifeblood of many community banks, while the mega-banks look to the segment for growth opportunities. Even credit unions are jumping on the bandwagon, creating services to court small business owners. This report focuses on the online channel and how it can be used to improve profits and market share in the small business market, especially the smallest companies, the 6+ million so-called microbusiness with annual revenues less than $1 million. But that’s just the tip of the iceberg. If you include all the home-based businesses, self-employed, contractors, independent sales agents, brokers, and those actively looking to launch a business, the number of “business oriented” households approaches 30% of all U.S. households. Although most banks market aggressively…

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