The Point

Are Your Business Customers Even More Susceptible to the Disruptors?

Apr  01 
Lynne Cornelison  Research Analyst, Raddon Financial Group 

Developing deeper relationships with the customer is certainly not a new concept, but definitely an approach financial institutions should embrace in an effort to meet growth and earnings goals. This is particularly true for business customers' needs.

Business customers present a distinct opportunity to provide niche services that meet their unique needs. Maximizing this opportunity makes sense as mounting issues and so-called disruptors arise in the industry. Today's highly competitive financial environment offers both business and consumers options, ranging from traditional banking to emerging non-bank disruptors in the marketplace.

Interest rates will eventually rise, but until we know more, financial institutions should diversify their revenue streams and look outside of traditional sources of noninterest income in order to insulate themselves from further margin compression. Additionally, many customers are still feeling hangover effects from the Great Recession – a lack of trust is a ubiquitous sensitivity these days. In the face of these issues, there is no better time to develop deeper ties with business customers and build the foundation for lasting relationships. It makes good business sense to target customers' specific business needs in order to offer fitting solutions.

There is no better time to develop deeper ties with business customers and build the foundation for lasting relationships. It makes good business sense to target customers’ specific business needs in order to offer fitting solutions.

Few would disagree the general attitude around disruptors in the financial market today, including Apple, PayPal, Google, and Square, is that they offer a fresh approach in a very well-established industry. They tend to provide creative solutions, respond quickly, and are reaching people who are disengaged or disenchanted with traditional financial providers.

Raddon’s most recent Small Business National Research explored this issue further by reaching out to small business owners to share their perceptions and attitudes toward disruptors and then compare those responses to similar consumer/retail perceptions. Interestingly, small businesses are even more open and accepting of these disruptors than are consumers. This is a strong indication that firms have business needs that are not being met by their traditional financial industry providers and that they potentially will look to these disruptors for help or to fill a service gap.

What these findings do not show is the underlying opportunity that exists today in better understanding your business customers and building on your current relationships by offering services or products that can assist their businesses. Small businesses report that the top three services they are using from their financial institution are merchant card services (45 percent), payroll services (39 percent), and direct deposit (34 percent). Other services cited by small businesses include cash management services (20 percent), and ACH and wire transfers (16 percent).

While these business service usage figures are promising, they also show there is room for growth and expansion. Raddon found 24 percent of all firms indicate they anticipate acquiring or opening a new business service in the next year, up from 19 percent in spring 2014. Such anticipated business service growth further illustrates the potential advantage from partnering with your business customer and better understanding their needs.

Asking good "why" questions to get to the core of their business issues only serves to deepen relationships, enabling you to answer the question of how your product and service offerings can meet the business' unique or expanding business needs. By fostering an expanded business services menu, institutions are able to diversify revenue streams beyond current sources, and offer distinct service bundling options, which may ultimately set them apart from their competition.

Creating products or services overnight to meet every unique business customer need or nuance is unrealistic and not expected. However, multiple factors substantiate the need to deepen the client relationship in order to promote growth and sustainability. Gaining a better understanding of your business customers' unique requirements and working to fulfill those needs with the right solutions can solidify long-term primary financial institution relationships. And lasting client relationships can serve as the biggest competitive disruptor of all.