Large banks are at risk of losing lucrative small business customers

Bruce Jennings
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Many smaller business customers are considering moving banks (Source: Getty)

Legislation is driving the biggest phase of disruption in terms of customer ownership the banking industry has seen in recent years. Dozens of fintech startups and digital-first challenger banks have flooded the retail banking market, and while much of the spotlight has been focused on consumer banking, revenues from small- and medium-sized businesses (SMBs) are also at risk for large, established banks.

SMBs represent a substantial portion of the industry’s deposits and loans, and our recently released 2018 FIS performance against customer expectations (Pace) study found one in five UK SMBs are planning to switch banking providers in the next year.

This is a stark change from past market stability. SMBs are loyal customers, extremely so, with past industry turnover consistently in the single digits. Incidentally, those with the largest revenues reported being the most eager to switch. We’re not talking about corner-shop businesses either – rather businesses with turnovers of up to £350m, representing a sizeable chunk of revenues.

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So why is this? Well for a start, there are a lot more options available today, and the same people receiving digital services from their personal banking provider are starting to look for similar experiences in SMB banking for their business.

Traditional on-boarding for a business bank account can still take weeks with some large high street providers. Yet with some of the new challenger banks, business owners can set up an account in just minutes on their phone, simply using a photo of their passport or driver’s license.

Unwinding banking partnerships isn’t always the easiest thing to do, so whether we see this level of attrition materialise in practice remains to be seen. However, it’s an important early warning sign banks will need to take heed of, if they are to avoid losing business customers.

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With many SMBs indicating they aren’t currently getting what they need, whether they change their primary banking provider or not, they are more likely to spread their business around with other providers to alleviate pain points with their primary bank, such as payment processing or merchant services.

Of course, 70 per cent still say they’re satisfied with their current bank – which provides some welcome news for incumbents. For the most part, established high street banks have the trust of their customers, and substantial brand recognition – which must be leveraged. How many business owners have heard of the brands that make up this new breed of challenger banks, compared to your familiar high street giants?

Despite trust and security accounting for a lot, businesses will shift quickly if they aren’t getting the tools they need from their current providers, and that will almost certainly start to hit banks’ bottom lines. Complacency isn’t an option, or that 22 per cent could quickly become 50 per cent, or more, so how banks respond to the risk of losing SMB customers is key.

To save these longstanding and lucrative relationships, banks need to look to add the ancillary products and services businesses are calling for, whilst ensuring the highest levels of security to protect the trust in their brand. And they need to do so at a much greater pace than the industry has been comfortable with in the past.

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