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The Ultimate Guide to SMB Banking Data

Small and Medium Businesses Feel Misunderstood

Small and medium businesses (SMB) represent 99% of all companies in the United States and employ 47% of the workforce. 

Devastatingly, one in five of these small businesses shut down in the first half of 2020, with minority-owned businesses hit especially hard. It’s clear that if there ever were a time when these businesses need help, it’s now. 

Unfortunately, many small businesses owners don’t feel like they get enough help from financial service companies. For instance, according to a survey from J.D. Powers, only 37% of small business owners say that they feel their bank appreciates their business, and only 32% say that they feel their bank understands their business.

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This data is somewhat surprising, considering that business banking generates the majority of revenue (including interest income) at many financial services companies. In other words, small and medium businesses keep financial service companies in business, but they still feel unappreciated and misunderstood.

This pain is particularly acute for small business clients, who typically run short on resources needed to dynamically track cash flow. Offerings within financial services companies have historically been focused on consumers (who are high in volume but low in revenue generation) and commercial clients (who are low in volume but high in revenue generation), leaving the vast number of small and medium businesses without the services they need to better manage and grow their companies. In addition, digital tools for SMBs are generally either too simple (i.e., made for consumers) or too complex (i.e., geared toward large enterprises).

Part of the problem is that it’s simply difficult for banks and fintechs to get the right insights into their business clients. Too often, financial services companies don't know how many small businesses are using their consumer accounts and digital tools because they blend their business banking with their personal banking. Because of this, many SMBs turn to external providers that offer the services they need to more efficiently manage the cash flows of their business. 

The effect is that small business owners eventually pay more than they otherwise would and financial services companies lose non-interest income opportunities. It doesn’t help that, according to Accenture, 42% of small and medium businesses now say they believe they can get better service from an alternative provider. It’s no wonder that 35% of SMB customers say they’re willing to leave their current bank provider for a better digital banking offering, according to Barlow Research. 

Without the ability to accurately organize and analyze SMB customers’ spending, saving, and borrowing behaviors, banks and fintechs could be missing out on growth opportunities — not to mention lost cross-sale opportunities — as these customers look for other solutions.

To better understand the relationship between small businesses, banking, and data, we surveyed 265 SMB owners. With this data on hand, you will better understand the relationship between SMB owners and their primary financial provider by focusing primarily on pain points, product usage, and preferences. 

Here’s what we found.

What’s the State of SMB Banking?

First, we found that 70% of respondents say they hold personal and business accounts at the same organization. This indicates the value these customers bring, since they typically have a range of business and personal financial products with whatever organization they consider their primary financial institution. 

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We also found that business owners primarily use digital technology (40% online and 21% mobile) to do their banking. This mirrors the increase in mobile banking seen throughout 2020. 

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Andy Hernandez, Chief Digital Officer at Regions Bank, says they saw this shift firsthand with small business owners. “We saw a 22% increase among those customers in terms of daily logins over the same period a year ago,” he says. 

Hernandez also talks about changes with customers who weren’t using digital banking, but who have started now. He says, “These customers had to get into the game based on necessity, since branches were closing. Even if the branch was open, a lot of people didn't want to leave their home. So perhaps reluctantly, they started banking online.”

Even though only 21% of respondents said that their primary mode of banking is mobile, having an “easy mobile banking experience” was rated as the second most important factor in choosing a bank — just after quality customer service.

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The most common banking products used by businesses are, unsurprisingly, basic services such as checking and savings accounts, followed by cash management services such as lines of credit and SBA loans.

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Small and medium business owners get these products from a range of providers, including national banks, regional banks, local banks, credit unions, and online-only banks.

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We also found that a majority of business owners (67%) say they dedicate 1-4 hours per week managing their business’ finances — indicating an opportunity for financial services companies to give personalized guidance in this area.

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This opportunity for personalized guidance is something that business owners are overwhelmingly seeking, with 70% of respondents saying they want it. 

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This level of guidance can mutually benefit business owners and financial services companies alike, since it decreases the number of times these owners need to reach out to review their finances — something that 35% of respondents say they have to do at least weekly.

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Personalized financial guidance can also help business owners deal with their biggest SMB worries, which include cash flow and budgeting.

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We also found that business owners view an easy user experience and legible transactions as particularly important in helping them address these worries.

In addition, we found that respondents almost uniformly expressed interest in cash flow management, tax preparation help, proactive insights, and personalized financial contributions — all of which hinge on having a wide range of enhanced data.

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The Way Forward: A New Approach to SMB Data

As seen in these survey results, financial services companies must understand that their business clients are hungry for digital-centric services. This is particularly true after 2020, which saw the percentage of business customers that are defined as “digital-centric” rise from 33% to 45% and the percentage who said they’d visited a branch in the last three months 71% to 59% drop from from 2019 to 2020. 

In short, digital resources were already in high demand. Now, after 2020, they’re essential. 

The key to all of this is, again, aggregated and enhanced data. As Peggy Mangot, Operating Partner at PayPal and former SVP of Innovation at Wells Fargo, said at the MX Digital Banking Week, “data is everything.” She added, “The true unique differentiators and the successful financial institutions of the future will be consistently delivering experiences that help their customers in financial health, help them understand their money, and help them make better decisions. … And what is essential to that? Data.”

Fortunately, there are ways to move forward on this front. By creating visibility into small and medium businesses, financial services companies can dynamically and accurately understand who they are doing business with and how these businesses are behaving to better meet their needs. With the right data approach, financial services companies can:

  • Quickly identify business loans and other products with cash flow insight and analytics into financial profiles and financial needs
  • Analyze all customer transactions to identify personal accounts that are also serving as small business accounts
  • Improve onboarding and business processes 
  • Gain insight into business spending profiles and create customized messages and offers 

There’s ample opportunity to use data to improve the banking experience. Ron Shevlin, Managing Director of Fintech Research at Cornerstone Advisors, says that banks can’t afford to rest on their laurels. “Banks have a big opportunity right now to gain some share in the small business market,” he said at the MX Money Experience Summit. To back this up, he cited research he’s done that shows that 30-40% of small businesses say they’re open to a new banking relationship. To bring in these potential customers, community banks need to have the right technology — technology that can reduce “the friction points that small businesses are faced with.” 

To take advantage of this opportunity and win new business, it’s critical to optimize the onboarding process. One way to do this is to implement instant account verification (IAV), which verifies funds for all business accounts. By streamlining the onboarding process in this way (as opposed to a laborious micro-deposit effort), you ensure that your prospects become customers. Anything that shortens the time between the desire to make a purchase and actually making the purchase increases a business’s bottom line. It’s one reason that Amazon’s one-click ordering patent is worth billions

According to data we’ve gathered from a range of financial institutions as well as internal data, the onboarding drop-off rate for businesses using a micro-deposit process is as high as 49%, while the onboarding drop-off rate for businesses using instant account verification is as low as 1%. This difference has monumental implications for gaining business clients who are looking for a new banking relationship.

The bottom line is that with the right data on hand, financial services companies can create experiences that rival the best that other leaders in digital, from Amazon to Spotify to Netflix, have to offer. Each touchpoint can be personalized and seamless. As small and medium-sized businesses experience more pain than they have in decades, it’s more critical than ever to give them the guidance and support they need — backed by true, data-driven understanding. 

MX Data Enhancement: Powering Your SMB Customers 

MX Data Enhancement for Business is the first step to driving growth and engagement with business customers. With cleansed transactions, categorization, and easy-to-use dashboards, financial institutions and fintechs gain insight needed to understand cash flow, identify growth opportunities, avoid risk, and increase ROI.

MX makes it easy to understand and take action on business transaction data. By converting transaction data into legible descriptions with merchant logos and category descriptions and organizing the data into easy-to-use dashboards, organizations can begin tracking and measuring performance gaps, areas to invest, and develop a better understanding of their business customers.

MX categorizes customer transaction data with industry-leading categorization coverage and accuracy. We’ve also built a business-specific categorization taxonomy, which aligns with accounting principles and common business expense categorizations to provide a detailed spend analysis for the majority of business tax deductions. With these standardized data sets, you’re providing customers with dependable insights that they can trust. 

With this enhanced data and our pre-built dashboards, MX enables you to see owner name, industry, number of employees, age of company, email, phone number, address, postal code, number of internal accounts, number of discovered accounts (which refers to accounts the user has with other companies), cash balances, debt balances, cash flow over time, spending by merchant, spending by category, and more.

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