Financial services and small business: Building back stronger, together

During COVID-19, the temporary shut-down of businesses devastated US small business. According to a survey in February 2021 from the Federal Reserve Bank, it’s projected that three out of every 10 small businesses in the U.S. say they likely won’t survive 2021 without additional government assistance during the pandemic. Considering there are roughly 30 million small businesses in the U.S., that means nine million small firms are at risk of closing for good or being deeply impacted financially.

Given that the country now seems to be coming out of the worst of the pandemic, the rebirth of small businesses presents an opportunity for banks who have also been impacted by the pandemic themselves. But banks that have historically used past-performance as an indicator of risk can no-longer rely on those models because of a black swan event. The new banking relationship for small business has to evolve.

CI&T, a global digital solutions provider, conducted a study in December 2020 targeting small and medium sized businesses.  The characteristics of those businesses included:

  • Companies based in the U.S.
  • Respondents were in a management/decision-making role
  • Annual revenue less than $25M were included
  • 1-500 employees (did not include sole proprietors)

Two key themes emerged from the findings.

The relationship between banks and small businesses are changing and the winners are those that can help the needs of these small businesses beyond that of the traditional deposit and credit model.

Over 84% reported having “very much” or some degree of trust in their bank. But the expectations are getting higher. With low interest rates, business owners who entrust large amounts of cash at the bank often feel like they are getting short-changed. Trust simply isn’t enough by itself but how does the bank fulfill all my needs.

The CI&T study concluded that small business owners are open to banks to provide non-traditional banking activities such as payroll services, expense management, tax advice, among other services.  Although banks may not want to directly provide these as direct offerings, being a connector or part of the bank’s ecosystem creates a deeper relationship.

For many years, the prevailing attitude among financial service companies was that digital banking meant replacing in-person services with something automated. What was left out of that equation was the value of personal relationships particular for small business banking.

Although we see the move to more digital for customers, small businesses still want personal interaction due to the complexity of their work. The working model for banking also has shifted to be more virtual, moving away from just branches or mobile.  How do we have bankers who may work in a remote context that provides personal consultation through online, mobile, phone and ATM.

Here it is a once-in-a-lifetime opportunity for banks to redefine their relationships with small business clients.

Is your bank ready for the rebirth of business?

To learn more about the critical relationship between small businesses and banks, check out the full report (RE) OPEN FOR BUSINESS for further details.