Top 10 Financial Services Providers by Small Business Market Penetration


In the 2002 study of small business, TNS (formerly NFO Global Financial
Services) looked at which banks had the largest share of small businesses
relationships and which were ranked highest by small business clients.
ranked highest in customer loyalty, followed by Wachovia
and Washington Mutual.

1. Bank of America



·         Three levels of business online banking: online banking with
bill pay, Business Connect for multi-users with varied levels of
access, and Bank of America Direct to manage all business finances

·         Good comparison chart of the three choices

·         Resource center with informative articles on starting a
business and other topics

·         Protect against online fraud link


·         Must scroll down to see all choices

·         Hard-to-read small blue font for most links

·         No separate URL or bookmark helper


2. Wells Fargo



·         Small business tab

·         Excellent navigation and design, all viewable on a single
screen without needing to scroll.

·         Clients can view personal and business accounts from a single

·         Single page, informative Small Business Newsletter

·         Customers and non-customers can enter email address to signup
for newsletter

·         Relevant and useful tips on product pages

·         Product comparison pages as well as best product for your

·         Push a button to switch from English to Spanish and back again

·         Link to Make this your first page at



·         No link to Security on the main page

·         Not using liquid layout, so homepage appears small and
off-center at higher resolutions


3. Wachovia



·         Small business is one of the four main navigation
choices on the top

·         Copy and headlines are solutions-oriented, e.g., Meeting
Your Needs, Resource Center

·         Excellent navigation and layout on a single page

·         Separate small business FAQs

·         Relevant products and services packaged into “centers”:
Banking Center, Lending Center, Investing Center, Online Services Center,
Insurance Center,
and HR Solutions Center


·         Must scroll to see information on bottom of screen

·         No link to Security


4. U. S. Bank




·         All major links are contained on a single page without

·         The no-frills style is easy to read

·         Two solutions-oriented sections: Achieve Your Goals and

Small Business Center

·         Separate Small Business login

·         Link to Newsletter subscription


·         Layout and design could be improved

·         No link to Security


5. Bank One




·         Product-oriented layout makes it easy to find specific products

·         Small link to Security on bottom (not visible on


·         There is no small business section, in fact the term is
not used in any header, although it is mentioned in the opening paragraph;
choices are Business Banking and Commercial, that defies
industry conventions and could cause lost business

·         No solutions-oriented areas or resources section

·         Copy is cliché-ridden and not benefits oriented;
for example under Insurance:
     “You’ve invested your heart in your small business.
      We can help you find ways to protect it.”


6. Chase





·         Small business is one of the four primary navigation
choices on the top

·         Excellent design and layout that fits on one page without

·         Solutions-oriented sections: Plan and Learn,
, and Business Stages

·         Link on left to Have Chase Small Business contact you

·         Privacy & Security link on top

·         Prominent Open an Account and Online Banking: Enroll
boxes in upper right

·         Liquid layout


·         No quick navigation or separate URL for the small business
page, you have to click on the Small Business section on the home
page, then move your cursor down the cascading menu to the Small Business
it only takes a few seconds but it’s still unnecessary extra


7. Fleet




·         Separate URL

·         Tabs across the top help users find important subjects

·         Link to Small Business Value Package (Note: Fleet also
offers a Small Business Platinum Program with a dedicated
relationship manager, faster funds availability, and priority phone service

·         Solutions-oriented areas: Ideas and Information,
Business Tools & Resources


·         Layout and design is a bit overwhelming


8. Citibank






·         Using the drop-down menu you can navigate directly to relevant
business unit pages; the AAdvantage Business Card main page for
example is very well done


·         Poor navigation off the home page: The only way to navigate to
the small business section is to use the drop-down menu on the right;
and because it doesn’t have a Go button, it took us 30 seconds before
we figured out you have to cursor down to Small Business at-a-glance
(screenshot above) in order to move to the small business section

·         Poor navigation within the small business section: The four
main choices at the top of the page (Products, Planning, Investing,
and Special Offers) are NOT related to small business, they take you
back to consumer
 pages, and if you don’t use your back
button, you have to go through the full navigation routine to get back to
small business

·         Must scroll down to see all the choices

·         Main banking link (Checking, Savings, & Financial Services)
as well as the Online banking link cause a pop-up screen to load
which is dominated by an outdated self-promotion for online personal banking
with 2001 testimonial from Forbes magazine


9. SunTrust





·         Small Business Resource Center is a good area, although
it’s buried under the Online Services tab in the Business

·         View only option for online banking, no money movement

·         Ask SunTrust search box in upper right is handy, but it
doesn’t distinguish whether user in searching from business or personal



·         The top navigation bar is a mine field of cascading menus that
launch when the mouse travels over them, an out-of-date and annoying method
for primary navigation

·         No dedicated Small Business homepage, other than the
Small Business Resource Center
mentioned above and a mid-page link to
Your Small Business Solution
which leads to a curious page entitled
that talks about Total Business Banking, but it’s not
clear if it’s geared to small businesses or not.

·         Unclear and vastly different navigation/organization in the
various areas devoted to small business (e.g., Small Business Resource


10. Washington Mutual






·      Link to content from StartupNation in upper-left corner; the
only bank in top 10 with headline targeting startups (see back page for more

·      Good online banking demo with audio highlights

·      All the information shows on a single page without scrolling

·      Liquid layout


·         No link to Security

·         Copy and headlines could be more solutions-oriented

·        Layout is a bit sparse for a bank


Small Business Case Studies: Putting it all Together

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 foregone (deposits) or paid (loans) assuming 2% cost of funds
2Purchased through US Bank, but processed by CheckFree and user
interface by Microsoft Money

Package accounts targeted to business segments

Most banks offer small business bundles that include checking and
other basic transaction services. However, we believe the online platform
can be used to assemble more valuable offerings targeted to small businesses
with various financial management needs. Table 53 (below) shows ways
that the small business market could be segmented. Table 54 (p 53)
outlines major feature that could be included in package accounts targeted
to the financial management needs of the small business.

Table 53

Potential Business Segments to Target


Virtual financial management packages

Most banks offer small business account bundles that include checking
and other basic transaction. We believe that there is a significant
opportunity to expand into hosted financial and customer management systems
with monthly fees of $100 or more. Following are the pros and cons of moving
into the financial management arena:


  •          Profitable, incremental fee income
  •          Publicity and image enhancement from being the first in
    your market to integrate banking functionality into an overall Web-based
    small business management suite
  •           Product differentiation and an impressive unique
    selling proposition
  •           Positive word-of-mouth within the local business
  •           Powerful retention tool
  •           Potential for licensing to other financial



  •           Weak/uncertain demandd: Until recently, small
    businesses have been slow to adopt new banking technology. It may take
    several years of marketing, sales, and training before you begin to see
    a payback.
  •           Development costss: Building a robust, highly secure
    new system will be pricey; you will probably want to partner with an
    accounting software developer that already has code for the basic
  •           Uncertain ongoing servicing costss: Being on the
    bleeding edge has its risks; it will be difficult to predict ongoing
    costs for system maintenance, software development, and customer
  •           Lack of employee confidence: Financial institution
    front-line personnel have been known to steer clear of discussing small
    business and/or online banking subjects due to uncertainty with their
    operation, cost, and overall value.


Table 54

Features of Virtual Accounting Package Accounts

*Approximate monthly subscription price; additional transaction fees
would apply for certain services.



Package Account Descriptions

Virtual Business Manager

Description: A secure place for small businesses to set up an
online home base, similar to corporate intranets. Possible names: virtual
office, virtual desk, virtual briefcase, or personal intranet. It could also
be marketed to the estimated 39 million U.S. households with a home office.

Functionality: For a financial institution, the key to making it
work is tight integration with banking and financial matters. A further
emphasis on local content/links could keep you ahead of the competition.
Banking and financial management feature are listed in Table 54 (previous
), including:

  •           Financial calendar/datebook/reminder service
    integrated with bill payment
  •           Virtual safe deposit service that automatically
    stores financial and other files in secure, encrypted, off-site back-up
    files not accessible by anyone but the owner (not even bank personnel);
    can be retrieved on CD for disaster recovery
  •           Virtual receptionist that tells visitors how to get
    in touch with someone at your business
  •           Company message boards for internal users
  •           Company blogs for external users
  •           Ability to post documents to the Web, which can be
    shared with everyone or just authorized employees and/or customers

Virtual CPAA

Description: As its name implies, the Virtual CPA provides
extensive accounts-receivable and accounts-payable services from a Web

Functionality: In addition to the Virtual Business Manager
features listed above and the banking/financial management features listed
in Table 54, the VirtualCPA could also provide the following features
(for more ideas, see the features built into Intuit’s QuickBooks

  •           Billing statements and invoicing via email, fax, or
    snail mail; includes reminders, and confirmations
  •           Online, cash-based accounting functions including
    data entry, categorizing, and basic report generation
  •           Bill-payment/accounts-payable monitoring functions,
    such as email notification when payment transactions are awaiting
    authorization by business owner; email flags when payment transactions
    don’t clear in a reasonable time
  •           Autopay function that pays certain bills
    automatically each month when preauthorized by the client
  •           Virtual credit card terminal with integrated email
    and accounting
  •           Lock-box service for paper check processing with full
    integration to client’s accounting system
  •           Option to share selected information with outside
    advisors, such as a CPA


Virtual CFOO

Description: This top-of-the-line service has it all. Just as in
the real world, the Virtual CFO takes the raw data and puts it into a
broader perspective that allows a business to be more profitable.

Functionality: The following features could be added to those
already offered in the Virtual CPA and Virtual Business Manager

  •           Online payroll with paper or direct-deposit paychecks
    and electronic tax payments
  •           Online federal and state tax return preparation and
  •           Full-fledged, double-entry online accounting
  •           Complete disaster-recovery services including a
    redundant data center – an area in which banks’ inherent in-house
    expertise could be turned into a profit center
  •           Complete Web-based customer file management and
    communications including:
    – invoicing/billing with Web integration, e.g., bill presentmentt
    – payment services/inquiry via the Web
    – email/fax/voice messages automatically confirming payment
  •           Access to a CPA-on-calll for accounting and tax
    questions; advice could be delivered publicly on your Web, privately
    through confidential conversations, or both.
  •           Automatic excess funds allocation to minimize
    interest expense and/or maximize interest income. For added value, the
    funds “sweep” could go to investment and loan accounts at any financial
    institution (not just yours).
  •           E-commerce services for hosting secure transactions
  •           Accounts-receivable management that automatically
    notifies the business owner and/or customers when accounts are past due;
    includes linkages to a virtual payment window
  •           Bank-branded virtual payment windoww, which clients
    can display on their website to increase end-user confidence in paying
    by credit card or electronic check (ACH); includes integrated messaging
    confirming orders.
  •           Extensive management reporting easily customizable
    using drop-down menus; for example, revenue reports by customer,
    accounts receivable aging, quarterly P&L; and so on.
  •           Mail-merge capabilities that work across any medium,
    email, fax, page, voice message, or snail mail; option to outsource
    snail mail services to a mail house; includes label-printing utility.
  •           Retirement plan administration including Web views
    for participants
  •           Project tracking module integrated with reminders and
    other Virtual Officee services
  •           Employee-expense reporting, cash advances and
    reimbursement services
  •            The ability to issue/reload prepaid credit
    cards for customer rebates, expense account cash advances, and so on..


Recommended Online Products and Services for Micro Businesses

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

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 competing
for their loan business. A product offering optimized for business will
differ somewhat from one built for consumers. The following sections detail
potential online features for various microbusiness products.


A. Transaction accounts: checking & cards

While the overall banking relationship may revolve around the
commercial loan, online banking is all about the transaction account(s),
e.g., checking and credit card accounts. Smaller businesses often track
their financial progress through their bank accounts, using them as a proxy
for sales, cash flow, and profits. Business users are also more likely than
consumers to value advanced features such as downloads, reporting, alerts,
and multiple authorization levels. Some of the more promising features:

  •          Custom data delivery: Periodic summaries of account
    activity whenever (daily, weekly, monthly) and wherever (text email, HTML
    email, or fax) the client chooses
  •          Long-term archives: If
    Google can provide 1GB of
    storage for users of its FREE email service, banks should be able to provide
    unlimited archives for a fee

Table 27

Checking & Savings Account Deposit Options



Table 28

Online Features for Transaction Accounts: Data Display, Storage, and
Value Adds



Table 29

Event Triggered Alerts & Authorization Messages to Support
Transaction Accounts



Table 30

Balance, Activity, & Account Management Messages for Transaction



B. Payment and billing services

Next to statement information, epayment services are the second most
important drivers to the adoption of online banking by small businesses. And
unlike data access, epayments have the potential to become profit centers
and/or a significant source of online differentiation. Most businesses make
far more payments than consumers, so the importance of electronic
alternatives is magnified. On the other hand, existing businesses already
have a system for payment and billing, so it may be difficult to convert
them to a new one that requires changes in internal procedures or software.

Your best opportunities may be in less systematic services (i.e.
one-offs) such as electronic transfers between a business’s accounts at
other financial institution (account-to-account transfers) and the
occasional rush payment.

Table 31

Online Features for Billing, Payment Processing, & Funds Transfer



Table 32

Online Features for Payment and Accounts Payable Services



Table 33

E-messaging to Support Epayments and Ebilling



C. Credit and loan accounts

Every small business relationship should include a credit component. It’s
the lifeblood of business, and a profitable product for financial
institutions. However, many banks have been reluctant to make commercial
loans to the microbusiness market. Average loan sizes, which are dwarfed by
typical commercial loans, make the effort seem fruitless. Yet profit margins
on the small business segment can be higher. Microbusinesses often use
personal credit, primarily credit cards and home equity secured loans, to
finance their businesses.

We believe every creditworthy microbusiness customer should
have a package of three or four credit lines with your financial
institution: an overdraft line of credit (connected to checking), a home
equity line of credit secured by their personal real estate (if applicable),
a business line of credit, and a business credit card. Even if the total
commitment is no more than $10,000 initially, it will make the business
owner feel like a valued customer; and each line can grow larger over time.

Table 34 contains a number of ways to use the online channel to
strengthen credit relationships with small businesses. Some of the more
important tactics:

  •          Loan/line Hybrid: A flexible financing vehicle that
    includes an integrated line of credit and the ability to take out fixed
    loans from the overall credit line.
  •          Startup Center: Information, tools, and resources geared
    towards startup businesses.

Table 34

Online Features for Lending and Credit




Table 35

Triggered Alerts for Credit and Loans



Table 36

Account Management Messages for Credit and Loans



Table 37

Example: Potential Annual Credit Product Revenue from a Microbusiness1


Source: Online Banking Report, 6/04

1Example for illustration purposes only, not based on actual
research results

Table 38

Example: Potential Annual Credit Product Revenue from a Larger Small


Source: Online Banking Report, 6/04

1Example for illustration purposes only, not based on actual
research result



D. Deposit and investment accounts

The online component of deposit and investment accounts is far less
important than for transaction and payment services. However, a robust
online offering can boost deposit-gathering initiatives and improve
retention. Key online components are listed below: Refer to the
section for more ideas.

Table 39

Online Features for Investment and Deposit Products




Table 40

E-messaging for Deposits and Investments



E. Financial management & accounting

Although automated accounting and financial management services offer the
biggest potential payback to small business owners, they are challenging to
deliver. However, working through third parties, financial institutions of
all sizes can help cement banking relationships with financial management
services such as:

  •          Visible and easy-to-use data downloading services
  •          Tools to make annual financial updates and tax prep simpler
  •          Online wrap accounts that handle all financial and accounting
    needs for an annual fee, see the section on the Virtual CFO, CPA, and
    Business Manager

Eventually, it won’t be enough to simply offer robust cash management and
online balance reporting to your business clients. Using the Web as a
platform to build industry- and customer-specific service offerings, we
expect a proliferation of specialized small business services during the
next few years. For example, several years ago QuickBooks opened its
code to developers
 spawning numerous niche services
built on the small business accounting program. Check out the QuickBooks
Solutions Marketplace


As the economy continues to improve, big banks will aggressively court
small and mid-size businesses with creative financial management via
Web-based services. These innovations will help counteract the perception
that community banks provide better service. In turn, community banks will
fight back with online offerings that enhance personal service
delivered to local businesses. Luckily, vendor offerings will make even the
most complicated Web-based service affordable to the smaller financial

Intuit has already built impressive software-to-bank linkages for
QuickBooks and Quicken customers. To some extent, the shrink-wrapped
software is a Trojan horse, positioning Intuit-controlled links to its
partner banks right on the desktops of your best clients. You can fight back
by incorporating billing, accounting, and financial management functions on
your website using account aggregation, instant messaging, and “push”
publishing technologies. Although, it will take time, we think smaller
businesses will be very receptive to financial and management services
running on encrypted, secure, and trusted servers controlled by the bank..



Table 41

Online Features for Financial Management



F. Service & client relations

Online services and other automation tools can be used to help
relationship managers service and cross-sell to small business clients. Used
judiciously, these tools can improve the perception of personalized service,
even while they improve the productivity of the relationship managers by
allowing him or her to handle a larger portfolio. Key components include (see
Table 42 below for more

  •          Library of recommended preformatted emails that relationship
    managers can easily customize and send to clients
  •          Private-banking-like service that treats small business owners
    like VIPs
  •          Instant messaging for more private/secure connection between
    the client and their business banking officer

Table 42

Online Features for Self-Service


Table 43

Online Features for Client Relations


Table 44

General E-messaging to Support Client Relationship Management


G. Security and privacy

Although business users may understand the tradeoff between convenience
and risk, the stakes are much higher. A breached small business bank account
could cause thousands of dollars of lost productivity and sales, in addition
to any funds that disappear. In addition, larger small businesses are always
up against the threat of insider theft and fraud. So business owners need,
expect, and will pay for more sophisticated security controls. For example:

  •          Additional authentication and/or authorization for outbound
    funds transfers or payments
  •          Token- or SMS-based authorization to access the account’s
    master level where new payees can be added, permissions can be granted, and
    so on
  •          Frequent email messages tracking online account access and
    alerting the business owner to any suspicious or out-of-character usage,
    e.g., login from an IP address in Liberia
  •          Comprehensive assurances and guarantees that accounts will not
    be compromised

Table 45

Online Features for Security & Privacy


Table 46

E-messaging to Support Security & Privacy





H. General website content/features

As branches are gradually replaced by websites as the place where most
banking business is conducted, your online presence will become a critical
part of your overall brand image. Branches will still have a role, but it
will be limited to account openings, cash deposits, and the occasional visit
to the safe deposit box. Websites catering to small businesses will become
far more sophisticated, yet highly customizable and easier to use. Important
features include:

  •          Resources and discounted banking packages for start-up
  •          Separate URL that business clients can enter to skip the
    consumer section

Table 47

General Website Features to Support Small Business



I. Insurance

Compared to consumers, small businesses buy a lot of insurance compared
to consumers. While banks may not be “top of mind” when it comes to
supplying insurance, financial institutions can use their online presence to
change that perception.

Table 48

Online Features for Insurance


Table 49

E-messaging to Support Insurance




J. Online sales and marketing

Even though microbusinesses are difficult to reach through traditional
direct marketing, we believe they will readily seek you out if you provide
credit and payment solutions targeted specifically to them, especially when
in startup mode.

It’s important to make sure everyone, especially the line staff,
understands that microbusinesses are to be actively courted, not avoided.
Typically, bankers roll their eyes and trot out horror stories about past
“nightmares” with flaky microbusinesses. Staff must be educated to the
facts: Microbusinesses can be risky, but with proper pricing and risk
management, the segment provides an excellent source of incremental profits.

In sales efforts, leverage the cachet of the branch manager. A single
telephone call or visit with the local branch manager could be enough to
land an entire microbusiness account. This all-important relationship with a
human must be nurtured after the initial sale. Email, instant messaging, and
other electronic tools can be effective in keeping the communication
channels open.

Some other effective ways to increase your share of the microbusiness

  •          Uncover microbusinesses within your own retail customer base by
    looking for random and fluctuating deposit activity.
  •          Develop Web content
    that caters directly to the small business segments you are targeting, such

    •         – Part-time businesses
    •         – Self-employed (including full-time sales) or 1-person business
    •          – Micro employers with fewer than 5 employees
  •          Use professional copywriters familiar with small business
    terminology to create website copy, including FAQs.
  •          Give business bankers “ownership” of the business part of your
    Web site to make sure it is up-to-date and speaks to the target markets.
  •          Enlist business owners to evaluate your website and other
    marketing material

Table 50

Online Marketing & Sales Tactics for Small Business Acquisition and



Table 51

E-messaging to Support Small Business Sales & Marketing



Small Business Online Banking Usage

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
). 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, we predict that we’ll pass the 50% penetration point within four
years. However, we may reach that point much sooner. One researcher,
Synergistics Research, is already saying that online banking usage
has passed the 50% mark in the $100,000- to $10-million segment, with the
largest small businesses
($5 to $10 million) topping out at 75% penetration.

Table 21

Small business online and PC financial services usage,


Source: NFO Financial Services Group SOHO/Small Business Owner 2002
Online and Channel Use

Reasons for not banking online are typical, with security and
inconvenience (compared to current methods) the most-cited reasons (see
Table 22, below).
Only 8% mentioned it was too expensive and only 5%
said they didn’t have the necessary equipment (presumably convenient online

Table 22

Reasons for not conducting either business banking or
investing online


Source: NFO Financial Services Group SOHO/Small Business Owner 2002
Online and Channel Use



Table 23

Online banking, billing, payment and other online activities

Q. Does your company use the Internet …?   


Source: NFO Financial Services Group SOHO/Small Business Owner 2002
Online and Channel Use, April 2003



Table 24

Cash Management Usage

Q. Please indicate if the service is


Source: NFO Financial Services Group SOHO/Small Business Owner 2002
Online and Channel Use, April 2003

Advisor usage

While small businesses still turn to their banker for loan
advice, only 17% use a banker for cash management advice, and just 4% for
retirement planning (see Table 25, below). Because small businesses are
skeptical of bankers’ expertise in non-traditional areas, banking organizations
must first explain why they are selling the product, and why the bank’s solution
is superior to more traditional sources. It may be advantageous to partner with
brand names that are more closely associated with the non-traditional product,
e.g., Safeco for business insurance.

Regardless of the channel the customer chooses to get
information and make transactions, a human is usually needed to close the sale.
In a recent Synergistics Research survey of 600 small businesses, only 7% had
opened bank accounts remotely (see Table 26, below). The sales process
can be assisted by email and phone with a branch manager, business banking
officer, or a special small business liaison.

Small Business Loyalty & Growth Potential

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 a mediocre score overall. And with the advent of
the online channel, it is easier than ever to shop around. And since only
22% of small business customers report being actively courted for their
deposits and investments, incumbent financial institution may be vulnerable.

Typically it has been the interaction between the business
owner and the commercial loan officer that has maintained, or sunk, the
relationship. Though personal relationships are still the primary factor,
electronic communications and online services are becoming important side
benefits. The savvy loan or banking officer can use email, instant
messaging, and a Web presence to supplement and extend the face-to-face
relationship. Staying in touch, asking for feedback, and identifying new
needs can all be done through frequent electronic communications.

Growth potential


Table 17

Accounting Method by Small Business Type


Annual Revenues

Who Does Banking?

Accounting Method

Typical Software







$0.25 to
$1 mil


Double entry


Small business

$1 to
$10 mil


Double entry


Source: Online Banking Report, 5/04

The small and microbusiness market holds much promise for financial
institutions looking to grow revenues and profits. Smaller businesses, which
are almost 100% computerized (Table 18, next page), are particularly
well-suited for online delivery; however, since most lack dedicated
resources to handle banking matters, they can be reluctant to change
existing processes and procedures. Even though your bank’s latest online
feature may draw an enthusiastic response in focus groups, expect slow
adoption by small business clients. They are simply too busy to pay
attention to incremental banking improvements.  

While banks and other financial providers have long coveted the small
business market, most have found it difficult to provide the high-touch
services needed by business owners at prices that a smaller business can
afford. However, we believe small business online banking offers a new
paradigm. Automated online tools and electronic communications such as
instant messaging and webinars, allow banks to deliver customized products
at affordable price points, both for the smallest home-office-based sole
proprietor as well as companies with hundreds of employees.


Table 18

Small business PC ownership


Source: NFO Financial Services Group SOHO/Small Business Owner 2002 Online
and Channel Use

The Forecast Growth New Small Business Online Banking

Looking at the entire universe (including self-employed and contractors),
for 2004 we project growth of 2 million new small business online banking
users, a slight decline from the 2.5 million who came online in 2003. And
the rate of growth, due to the higher base, will slow to 17% from
2003’s 28% (see Table 9, below).

Table 9
Forecast of U.S. Small, Microbusiness, and Self-Employed Online
Banking Usage

includes broadest definition of small business
users, population estimated at 23 million

Source: Online Banking Report projections based on industry data (+/-
30%), 3/04;
% OLB = percent of total population that is actively banking and/or paying
bills online (activity within past 6 months)


Table 10

OBR Forecast: Small Business Use of Online Banking
businesses with annual revenues from $50,000 to $10 million, not
including self-employed/contractors

Sources: 1998 to 2002 estimates, TNS Financial Services Small Business
Market Track
, April ’03; (1) 1995 to 1997 and 2003 to 2013: Online
Banking Report estimates plus or minus 33%



The opportunity at your financial institution

For a rough approximation of the small business potential in
your market, use the national average business-to-consumer penetration. For
example, there are approximately 90 million U.S. households with bank
accounts. Therefore about 25% (23/90) are business owners. About 8% (7.3/90)
own businesses that are relatively easy to find via identifiable business
phone lines, D&B reports, compiled lists and so on. The difference, about 16
million, are harder-to-find self-employed and contractors.

Table 11

Estimating the Number of Microbusinesses in Your Market

Number of banking households in your market
                                                    (fill in)

Multiply by the percentage of all households that are microbusinesses 
               x 8% or 25%*

Approximate number of microbusinesses in your market          
               =                        _____

Source: Online Banking Report, 6/04 *Depends on whether you are looking
at all businesses including self-employed/contractors, or just the
larger small and microbusiness segment

Total market size of balance-driven banking products

Looking at just the 1.2 million larger small businesses with
revenues from $1 million to $10 million (not including
self-employed/contractors), TNS Financial estimates total business deposits
of $240 billion and the total loans and lines of $160 billion for a total of
$400 billion. In addition, we estimated the microbusiness segment ($50k to
$1 million) has another $240 billion in deposits and loans. In addition, NFO
estimates that small- and microbusiness owners have another $1.6 trillion of
deposit and loan balances in their personal accounts, for a total of $2.2
trillion. Assuming a 200 basis point (2%) spread on the balances, the sector
is generating about $44 billion in net interest revenues, an average of
$6,000 per business/owner.

But, this only accounts the money paid out to financial
services companies. It ignores the significant internal and often hidden
costs associated with financial management: accounting, bookkeeping,
payroll, treasury, and so on. With the Web, banks have an opportunity to
compete not just for the traditional financial products, but also for the
entire financial operations of the business.

Table 12

Deposit and Loan Balances and Net Interest Margin from Small-and


Source: Small business ($1 to $10 million) segment and owner balances
from TNS Financial Services Group 2003 Small Business Studies, 4/03;
Microbusiness balances and average net interest margin are estimates from
Online Banking Report, accuracy estimated at plus 100%, minus 50%

1OBR estimate of $15,000 per microbusiness, n =
6.0 million

2OBR estimate of $25,000 per microbusiness, n =
6.0 million


Table 13

Small Business Assets by Type, Numbers and Balances


Source: Balances from TNS Financial Services Group (formerly NFO World
Group) 2003 Small Business Studies, 4/03


Table 14

Small Business Liabilities by Type, Numbers and Balances


Source: Balances from TNS Financial Services Group (formerly NFO World
Group) 2003 Small Business Studies, 4/03




Table 15

Misc. Product Usage


Source: Balances from TNS Financial Services Group (formerly NFO World
Group) 2003 Small Business Studies, 4/03



Table 16

Financial Products Purchased for Personal Use1 by Small
Business Owners

Warning: Small sample sizes of respondents with large balances may distort
the numbers.


Source: Balances from TNS Financial Services (formerly NFO World Group/PSI
Global) 2002 SOHO and
Small Business Owner Studies, 4/02; number of small and microbusinesses from
NFO’s 2003 Small Business Study, 4/03

Total population (N) = 7.3 million U.S. small and microbusinesses, not
including self-employed/contractors, OBR estimate +/- 20%

Does not include the value of the owner’s business, commercial real estate
investments, stock options, and other misc. categories

1Products used personally, not for the business

2Total market = (% using) x (average balance) x (7.3 million micro
and small business owners)

3Total balances only, does not include auto leases or insurance

4Across all business owners, users and non-users

5Net worth = personal assets less personal liabilities, does not
include net value of business or non-residential real estate holdings

6Total personal assets less value of residential real estate, does
not include net value of business or non-residential real estate


Barclays Small Business Banking

Q. When is a business most likely to open a new bank account?
A. When they are first starting out.
Recognizing that the best time to get their foot in the door at a business is before the doors even open, Barclays Bank (UK), addresses the issue front and center on its small business banking home page Barclays Small Business Banking : Small Business.
The company offers a number of startup service including complimentary consultations with business advisors and fee-free checking accounts (18 months if you also bank personally at Barclays, 12 months otherwise).

Types of Small Business : Research Results

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 more interested in
advice and information on credit, payment processing, and other banking
services; depending on many factors, may move rapidly towards launch and
need to quickly establish accounts and line up financing. Financial needs
vary depending on the business plan and funding.

·      SOHO (small office, home office): Smaller, work-from-home
sole proprietorships. It can also be used to describe mobile workers such as
home-based salespeople in insurance and manufacturing. We classify these
companies as microbusinesses.

·      Selfemployed: Persons who primarily work for
themselves, either as contractors, consultants, or commission-based sales
reps. We classify these individuals as microbusinesses.

·      SMB/SME (small and medium business/enterprise): Usually
refers to the largest segment of “small” businesses, companies with at least
several million in annual revenues. We classify these companies as small

Primary Data Source

The primary data source for this report is TNS Financial Services
(formerly NFO WorldGroup-Financial Services, and before that,
PSI Global). Our thanks to EVP Maria Erickson and her staff for
answering our questions and making data from their Small Business and
SOHO studies available. For more information on purchasing financial
services research contact Ms. Erickson at (813) 227-8562.

The Small Business and the Affluent Entrepreneur 2003 Study
was fielded between April and May 2003; the owners of 3000 U. S.-based
small businesses with annual sales between $500,000 and
$10 million were contacted by telephone or mail to provide the most
accurate and reliable
information possible.

Using the same methodology, 900 small businesses were contacted for
the SOHO and the Entrepreneur Study 2002 between September and
October 2002.


The big picture in small business

Small businesses exist in all markets, in every town and at
every crossing. Using a broad definition that includes smaller part-time
business endeavors, there are more than 20 million businesses in the United
States, one of every five households. And that understates the market
potential. If you also include the personal product usage of the
“business-owning” segment, the total could be as much as 50% of your

Depending on the definition, as many as 30 million business
entities exist in the United States, including self-employed or part-time
sideline businesses such as selling collectibles on eBay, or as few as 1.2
million if you only look at companies with at least $1 million in annual
. For the purposes of this report, we are defining the total small business
market as 23 million, a figure taken from U.S. Small Business Administration

The total includes

·         16 million self-employed/contractors

·         6.0 million microbusinesses with revenues less
than $1 million

·         1.3 million of that is the larger small business
with revenues of $1 to $10 million

Small businesses account for:

·         99% of all employers

·         51% of private sector employment

·         67% of net new jobs

·         52% of U.S. gross domestic product


·         600,000 new businesses are started each year1

·         13% of U.S. households own privately held

·         Business-owning households had higher income, more
education, significantly higher net worth, and were led by individuals in
the prime age group 35-602

·         Boeing Employees Credit Union’s recent
survey showed that 50,000 of its 350,000 (14%) members reported owning
businesses or being key decision-makers in one3

·         IDC reports there are now 15 million U.S.
home-based businesses, 10 million full-time and
5 million part-time4

·         More than 400,000 people make most or all of their
living from selling on eBay5

(1)     SBA Research Summary #211, “Small Business Share
of Economic Growth,” Jan. 2002

(2)     George W. Haynes, Assistant Professor at Montana
State, and Charles Ou, SBA Economist, presented an Advocacy Working Paper at
the Conference of Entrepreneurial and Financial Research in April 2002

(3)     American Banker, 4/13/04

(4)     2004 estimates from IDC as cited in The Wall
Street Journal
, 6/17/2004

(5)     Estimate from AuctionDrop, a company that earns
commissions selling merchandise on consignment through Ebay, as cited in
The Wall Street Journal
, 6/17/2004


Who wants to be a microbusiness?


Table 3

Number of U.S. Home-based Businesses



Change 2004 vs. 1999






9.9 million

9.6 million




5.2 million

6.9 million

(1.7 million)



15.1 million

16.5 million

(1.4 million)


Source: IDC, as cited in The Wall Street Journal, 6/17/04

Everyone it seems. While American attitudes towards big business have
declined markedly during the past four years thanks scandals at Enron,
MCI, and others, the small business remains on a pedestal. Its
human nature to root for the underdog, and the smaller the business the
bigger their perceived disadvantage.  

As you plan your business offerings, keep in mind that a majority of
Americans aspire to run their own business; fully two-thirds (67%) profess a
longing to be in business for themselves. And thanks to computers and the
Internet, there are 15 million home-based businesses in the U.S., 400,000 of
which make their living from selling on eBay. Surprisingly, though, the
number of part-time, home-based businesses has fallen dramatically in the
past five years, probably victims of the flat economy
(see Table 3, above).

Since most tax experts recommend separate personal and business
transaction accounts for even the smallest business, companion
personal/business checking, savings, and card products can be a lucrative
niche for financial institutions. Once you’ve convinced retail households
running businesses from home to add a business transaction account, you can
cross-sell credit and accounting services as the businesses grow.

Channel Preferences


Table 4

Primary Banking Channel Among Businesses
using Online Financial Services



Online banking


Equal mix




Source: Gartner G2, 2002

When it comes to financial matters, small businesses want it all, every
channel, all the time, at the lowest cost. Even among online business
banking users, only one-third say that the online channel is primary

(see Table 4, right). Although businesses may want it all,
they often do not have the resources or inclination to shop aggressively for
the lowest-cost source. The smaller the business, the likelier it is the
principal or a spouse handles banking matters. And these owners are unlikely
to make it a priority to wring every last dollar out of the cost of their
financial services. The story is quite different if the business has a
dedicated bookkeeper or financial manager on staff. This person may have
both the time and motivation to comparison shop; it’s a feather in their cap
if they find cost savings. So you may want to segment your business
customers, not
on total revenues, but on whether the owner handles the banking. And shower
attention on staffers hired to handle the
business’s financial affairs.  



Table 5

Number of U.S. Small Businesses by Annual Revenues

Source: TNS Financial Services Group, Small Business data 4/03, SOHO/Entrepreneur
data 10/02, updated to year-end 2003 by Online Banking Report, +/- 20%


Table 6

U.S. Businesses Entities by Annual Revenues
not including self-employed/contractors

Source: TNS Financial Small Business Market Study 2002, 4/03
(commercial banking numbers from 4/00); updated to year-end 2003 by Online
Banking Report, =/- 20%

1The person at the company that handles the majority of
banking activities

2Could be serviced by commercial banking department depending
on circumstances


Table 7

U.S. Small, Micro, and Self-Employed Businesses Using Online
Banking and/or Bill Pay

millions, n = 23 million (2003)

Source: Online Banking Report estimates 6/04; accuracy estimated at plus or
minus 30% U.S.
All = All small businesses including self-employed, n = 23 million (2002)
Larger = Small and microbusinesses with annual revenues between $50,000 and
$10 million, not including self-employed and contractors, n = 7.3 million

Table 8

Annual Growth Rate of Small, Micro and Self-Employed Businesses
Using Online Banking

millions of net new U.S. small business online banking users and
percent change from previous year


Source: Online Banking Report estimates, 6/04; accuracy estimated at plus or
minus 30%

Introduction to Micro Business Strategic Imperatives





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 background of both authors. Hundreds of ideas and tactics are presented, some with more emphasis than others. All support five key strategic imperatives for approaching this market (see Table 1 above).

While small businesses have lagged consumers in adopting online banking, recent research by
James Van Dyke’s Javelin Strategy & Research  shows that the gap has been eliminated. Javelin’s April 2004 study shows that 56% of all online households used online banking during the past 30 days, compared to 58% of households where the primary financial manager is self-employed (a good proxy of microbusiness ownership). About the only significant difference in behavior was in the usage of Quicken or Money software, where 28% of business owners used it during the past 30 days compared to 17% of non-self-employed (see Table 2 below). Small business owners also tended to visit the branch more often, especially for deposits with 80% having made a branch deposit in the past 30 days compared to 66% of all online households.

Table 2


Online Banking Usage: Self-Employed Online Households vs. All Online Households


Source: Javelin Strategy, May 2004 survey of 2,196 U.S. online households fielded April 2004; screened to be primary household financial manager
SELF = self-employed only (n = 163); NOT = all others (n = 2033); ALL = entire sample (N = 2196)    

Major strategic imperatives

1. Identify small business owners within your consumer
base and market

Since it’s time-consuming and expensive to attract small
businesses from your competitors, your first priority is to mine your own
consumer base for them. Customer surveys, website usage, and deposit
activity are good indicators of small business ownership.

2. Facilitate contact with a human at the bank

To maximize your share of wallet, it’s essential that each
business owner have a human point of contact at the bank. And it needs to be
someone high enough in the organization that they are not turning over every
nine months, one of the biggest complaints small businesses have about their
banking relationships. To maximize efficiency, this human interaction should
be supported with online tools such as email and instant messaging.

3. Begin a credit relationship

More often that not, small businesses use lending
relationships to determine who they consider to be their primary financial
institution. If you are serious about growing your small business share, you
must be aggressive in granting credit to small business owners. And it
needn’t be a commercial loan. More often it will be a consumer product,
especially tied to home equity. The business owner doesn’t care how you
classify the credit internally, they care that you are lending cash to grow
their business.

4. Bank the personal business of the business owner

Some small business owners insist on banking their personal
business at a different bank,
either because of personal relationships or privacy/security fears of mixing
personal and business accounts. 

5. Provide value-added services for a fee

After decades of being beaten up by consumers over every fee
on the schedule, financial institutions are wary of charging fees to their
retail-like small business customers. But, despite what they may say in a
focus group, once they have established an account, small businesses are
loathe moving and are relatively insensitive to pricing. If a business owner
values their time at $100 per hour and it takes 10 to 15 hours to switch
accounts, that’s a $1000 to $1500 soft-dollar cost to moving. However,
businesses are another matter. When shopping for their initial
banking relationship, a new business could be swayed by a couple dollars per
month. That’s why Barclays’ strategy of offering new businesses a
host of initial free banking and professional consultations is so brilliant.


Unique attributes of the small business segment

·         Small businesses crave stability in their financial relationships;
they want to deal with a company they are sure will be there in the future. More
importantly, they want a relationship with a real human who knows their
business and won’t let anything fall through the cracks during management or
business upheaval. What they look for in a provider is expertise, a long track
record, fair pricing, and easy-to-use reliable products.

·         Their sourcing of transactional banking services does not provide
competitive advantage to businesses large or small. It’s a relatively minor
infrastructure expense. However, credit services can make or break a business,
so that’s often the key to the relationship.

·         Online banking, while gaining in importance, is a relatively low
priority for most business customers who care more about the relationship with
their loan/biz banking officer, branch convenience, credit lines, loans,
rates/fees, and customer service.

·         It’s vitally important for most microbusinesses to connect with a
human during the initial sales process – someone the business owner believes
will have a positive impact on credit decisions.
In fact, business owners may value the bond with their banking officer
more than the relationship with the bank.

·         Businesses don’t have the time or inclination to adjust their
systems and procedures for relatively marginal convenience improvements. That’s
why, until recently, they’ve lagged consumers in online banking adoption. But,
once started they will often become fiercely loyal online banking customers.

·         Given the combined value of their personal and business financial
services expenditures, and the owners’ optimistic perception of future growth in
both, small businesses want to be treated like the important customers they are.


·         Smaller businesses have long been dismissed as lacking sufficient
revenue potential to justify the labor required to serve them; however, that
assumption is dead wrong. The combined net interest margin from business and
personal financial products is $35 billion per year with good prospects for

·         The smaller the business, the better the opportunity. Larger small
businesses already have established banking relationships and are on the radar
screen of every big-bank officer in the area. Each of those wins will be
hard-fought and expensive. The better opportunities are in the nearly invisible
microbusiness category, especially among self-employed professionals and
businesses in formation. However, non-banks such as Intuit, First Data,
and PayPal have made in-roads in certain product categories and will
attempt to leverage those relationships to up-sell other services.

·         Credit integration, overall financial counseling, and positive
representation to the inevitable loan committee are a must. Clients often have
good knowledge of the availability and prices of available capital options. Home
equity secured lending, with underwriting flexible enough to accommodate the
self-employed, is especially important when serving microbusinesses

·         Epayment companies such as PayPal, iPay ,
Fidesic)  that enable microbusinesses to easily accept credit
cards and ACH payments, can be an effective means of finding new customers.

Small and Microbusiness Banking 4.0


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 to the 1.2 million larger small
businesses with annual revenues of $1 to $10 million, the other 20+ million
businesses mostly fly under the radar of most banks, and make do with
consumer-oriented financial services.


However, as remote check scanning and other innovations lessen the
need for convenient local branches, a new breed of direct banking competitor
will be trolling for new accounts nationwide. But, incumbent financial
institutions hold strong advantages in trust and convenience and will be
difficult to unseat so long as their online services remain at parity with the

Jim Bruene, Editor & Founder

NetBank Announces Remote Deposit Scanning Service

According to an article in the May 20 American Banker, NetBank is about to launch a remote deposit service for its business customers. Although details of the yet-to-be-launched service are sketchy, it is expected that business customers would scan paper checks into a remote device that transmitted the images to NetBank for immediate deposit.
This service has two important benefits in addition to the obvious: freeing small business owners from a trek to the branch:
1. Improves cash flow since checks can be deposited immediately rather than on periodic trips to the branch
2. Streamlines record keeping in two ways:
(a) the original check can be filed as a paper receipt
(b) an electronic image is stored at the bank and is available if questions arrive
The service is not expected until August at the earliest. The technology provider is Alogent.
Speaking as both as a small business owner and an industry analyst, this is a great service and a strong candidate for an Online Banking Report Best of the Web award once the service becomes operational.