Large banks in the U.S. are facing increasing competitive risks that threaten their position with small business (SMB) customers, according to new analysis from FIS.
The company’s 2018 PACE (Performance Against Customer Expectations) Report, published on Wednesday (May 2), found large financial institutions (FIs) are vulnerable to losing their small business customers, which tend to experience greater satisfaction levels at regional and community banks.
FIS surveyed small business bank customers in the U.S. and U.K., concluding that bank-switching is on the minds of entrepreneurs in search of more affordable, high-tech services.
The survey found small businesses in the U.S. have higher satisfaction with their community banks compared to those banking with large FIs; most of the businesses that have switched, or plan to switch, providers are banking with larger institutions too.
Similar trends are seen in the U.K., where nearly a quarter of small firms plan to switch providers in the next year, most of which are currently with a large bank.
“Our research shows that larger banks are missing key opportunities to meet the growing digital needs of their important SMB customers,” said FIS Chief Operating Officer, Integrated Financial Solutions, Bruce Lowthers in a statement. “These findings are particularly concerning at a time when SMBs look to their banking partners to help them capitalize on favorable economic conditions to drive growth. Banks of all sizes have an opportunity to leverage their trusted status to provide these very important clients with the modern offerings they need to grow.”
Uncompetitive fees, product and service dissatisfaction, outdated bank processes or being declined for a bank loan are among the top reasons behind a small business’ decision to switch providers, FIS noted.
In both countries, FIS found that small businesses struggle to obtain accurate information on banks, particularly from large FIs, unless they visit a branch location.
At the same time, small businesses are increasingly reliant on digital services, with about 60 percent of SMBs in both the U.S. and the U.K. increasing the number of digital transactions completed in the last year. More than 70 percent of SMBs in the U.S., and more in the U.K., say they use mobile apps to handle financial transactions, with the majority in both countries reporting the use of mobile devices to make payments for their company.
“There’s both good news and bad news for banks in this new FIS study,” noted Aite Group Research Director Christine Barry. “The good news is that SMBs generally value their relationships with their primary banks and trust them more than alternative providers of banking and payment services. The bad news is that, at a time when their use and acceptance of digital transactions is growing, many SMBs are not happy with the tools they’re getting from their banking providers. Banks need to move quickly to address these needs.”