Posted By: David L. Peterson
There was an article recently published by The Financial Brand that was focused on where Small to Medium Businesses (SMBs) receive banking services; and it really caught my attention and got me thinking. The story highlights that while SMBs have unique needs and represent a significantly important customer segment, there is still a disconnect between the services that SMBs desire and the services those SMBs perceive that many FIs provide.
The story cited research as follows: “… megabanks have the lowest satisfaction rating among small business owners. So why don’t they use smaller institutions? According to research from FIS, one in five small businesses say it was because their local community bank or credit union didn’t offer the products and services they wanted.” Did you catch the important word in that paragraph? Smaller FIs didn’t “offer” products and services that SMBs wanted. The issue may not be that they don’t have the features SMBs want, but just that the SMBs didn’t know about them. That indicates to me that the issue is likely one where the feature set that a financial institution may be able to bring to bear on an SMB’s issues is often hidden or undisclosed to the SMB. If an FI doesn’t spend the time to let SMBs know that they have a robust set of feature/function, why would the SMB assume that the FI does?
This highlights two issues: the capability of an FI to properly market its capabilities and the ability of an FI to identify unique needs of an SMB and the market specific to those issues. While somewhat related, let’s examine these two issues independently:
Marketing Cash Management / Treasury Services:
In my experience with community banks and credit unions, smaller financial institutions are generally not organized around a sales or selling culture. Even the dreaded 4-letter “s” word is not often used. There is rarely any title or department in a financial institution that has the word “sales” in it. Regardless of whether we use the word or not, a sales culture would be based on identifying prospects, making presentations and demos, creating proposals, establishing pricing and closing deals (ie: getting signatures on agreements). In a sales culture, there are expectations, often referred to as quotas, which codify what is expected from each sales representative. Does your organization set expectations about the volume of new business it expects? If not, then it’s unlikely that you have a sales culture.
From a cash management/treasury perspective, it is critical for your financial institution to know all of the capabilities that you have to offer. Then be able to convert that information into a presentation that creates a compelling argument stating your institution has all the capabilities that align with SMB needs. Of course, having a great presentation is only the first part of the process; you’ll also need a great presenter. That presenter has to be talking to the right group of people at an SMB that is actually a prospect. That means that there must be an effort to identify companies that are, more likely than not, interested in learning about alternative banking services. That activity may be done by different individuals who are not the presenter. The larger the organization, the more likely that task specialization will be present.
If you have SMBs that are in your market and who are not already banking with you but would likely do so if asked, then why aren’t they? Have you created the appropriate sales culture where there is a systematic effort to identify that prospect? To make a compelling presentation about the cash management services your institution offers? To have the necessary closing techniques to get an SMB to sign an account agreement? If not, then it is likely that there are SMBs in your service area that would tell a polling entity that they don’t think your institution has the capability to process their account. It doesn’t matter whether they are correct; perception becomes the reality in the absence of a compelling, cogent argument of why your institution is the best fit for the SMB. Remember, all of the studies say they would want to do business with you, so you are already halfway to success if you would just take the initiative to create and deploy an effective sales process.
Targeting Specific Needs of an SMB:
The ability for any financial institution to truly understand the tools needed by a small business is another key element that drives an SMB’s understanding of the viability of your institution as a partner. When FIs are not experienced in, and do not, discuss issues such as acquiring payments, including web payments, handling exceptions and returns, or posting payments to cash in the accounting system, the SMB may reasonably deduce that the FI is not well versed in their unique requirements. In other words, how confident is the SMB that your FI knows the issues that they are dealing with and that you have solutions that address those issues?
Let’s examine the example of the posting of payments into their accounts receivable accounting module. SMBs are driven by cash flow. There is a difference between money that is in the bank account (ie: received payments) versus what is posted to their accounting system. If a payment cannot be posted, then the revenue is not available for ongoing business purposes. In today’s environment, there are numerous electronic payments that can be received (ie: ACH, electronic check, wire, etc.) and more frequently, the remittance information is decoupled from the payment. In other words, the payment is made without a designation of which account is being paid. Say an ACH Credit is executed to make a payment but the client of the SMB sends an email to an accounting email address to indicate the account on which the payment should post. Now the business has manual steps: to get the payment information from the FI, go find the email with the remittance information, and ultimately, manually post the payment to the accounting system. The time and money associated with that process is a drain on the company. If the FI recognizes this unique SMB opportunity, then they could offer an integrated receivables solution to the company that would access all sources of payments and all sources of remittances to create a single file for posting to cash. Even before the SMB brings up the subject.
The ability for an FI to bring solutions to SMBs is a key element of increasing their confidence in viewing your institution as a viable financial partner. This level of confidence should be a driving issue on which your FI should ideate. You can add this topic to your strategic planning process or brainstorm it in an upcoming senior management meeting. Then take the outcome of that process and create internal processes that will have two specific goals: 1) Create an environment where your FI is seen as a viable alternative to any SMBs in your market and 2) create a sales culture within the FI that will capitalize on sales opportunities to SMBs in a professional and systemic way.
I encourage you to read the whole Financial Brand article here - https://thefinancialbrand.com/72541/community-bank-credit-union-small-business-banking-lending-trends/?edigest.