Theoretically, if you have a great product and give it away for free, your business won’t last long. But that’s the reality of community banking today. Financial institutions are giving business banking services away to small businesses for free, or at an extremely low cost, primarily because they think these businesses won’t pay.
According to an Aite-Novarica Group report commissioned by Apiture, 20% of businesses that use small banks (<$10 billion in assets) pay nothing for non-interest-bearing banking services. An additional 21% pay less than $25 a month for these services. However, the report found that even though small businesses may be more sensitive to price, they are willing to pay for capabilities and experiences that help them save time, improve efficiency, and increase convenience.
Some institutions are listening. The Big 4 banks (Bank of America, Citibank, JPMorgan Chase, and Wells Fargo), for example, offer a feature-set geared toward winning small business customers. With many of the most innovative products in the market, these Big 4 have found ways to capitalize on the commercial banking sector and currently own 58% of the U.S. small business market.
Similarly, fintech companies are building business banking options that connect seamlessly with consumer banking solutions. By improving convenience and efficiency for small business customers, they hope to offer the type of solutions that will motivate small businesses to pay for services.
So how does a community bank or credit union compete when they don’t have the economies of scale of a large bank or the R&D budget of a fintech? How can they attract small business customers and get them to pay for services?
One solution is to partner with a fintech who offers the business banking services that small business customers demand. In this scenario, you offset development costs, use already tested solutions, and your institution can deliver the same innovative features the big banks offer. In return, your institution could discover a new revenue stream that can help you compete.
To learn more, download the Aite white paper, How Community Financial Institutions Can Make Money from Business Clients, or contact Apiture to learn more about banking solutions for small business customers.