How becoming the primary FI for small-business account holders creates a competitive edge

Many of the nation’s small businesses (SMBs) survived the pandemic in part through digital transformation, and 40 percent have made those changes permanent, according to our recent survey of decision makers at 400 U.S. SMBs. With a significant number of SMBs now using online marketplaces as their primary sales channel and looking at new fintech funding sources, the time is right for financial institutions (FIs) to solidify their relationship advantage with SMBs to keep rising fintech competition at bay.

“The pandemic accelerated the adoption of financial technology for many small businesses, prompting an evolution in their business model,” notes Allison Cerra, chief marketing officer of Alkami. “With the help of digital transformation, small businesses are bouncing back in greater numbers. FIs have an opportunity to grow the relationship with these firms by meeting them online, on mobile and on their terms.”

Build on enduring trust

The industry is at an inflection point with nearly all SMBs now having a working relationship with a fintech partner. The good news for FIs is that those SMBs are still much more likely to trust suggestions from their primary financial institution (PFI) than they are from a fintech partner. The bad news is, that those same SMBs are more trusting of advice from their fintech partners than they are of suggestions from secondary FIs. Being an SMB’s second-place FI puts you dead last as a financial advice provider and as a source for loans.

One way for FIs to expand the number of SMB customers who consider them to be their PFI is by making it easier for SMBs to open business accounts. With only half of the nation’s largest 24 banks (and even fewer regional and community FIs) now offering a digital banking option to open a business account, FIs that modernize their processes to enable digital account creation will gain a competitive edge with SMBs that have similarly upgraded their operations and infrastructure through the pandemic.

The nation’s SMBs see strong FI relationships ahead. More than 60% of SMB decision makers in our survey say the “bank” of the future will be a financial services company, not a fintech firm. Maintaining that mindshare and bringing this vision to life requires FIs to offer easier account access and stepped-up service offerings.

Key takeaway

• Primacy is critical. The PFI relationship still holds sway. The key for FIs is to gain primacy through the deposit account, which is how more than half of SMBs define their PFI relationship. Digital account opening is the onramp to a broader financial relationship with these firms.

FI growth opportunities are tied to technology

SMBs are investing in technology to continue their transformation. In fact, more than half of surveyed SMBs cite technology as a key investment priority. Whether they invested heavily in tech to survive the pandemic, or are now looking to integrate technology into their operation to stay competitive, technology is a driving force behind SMBs’ continued success and growth across all aspects of their business.

FIs that recognize this emerging reality and get out in front of it — both by financing those investment priorities for SMBs and by expanding their own digital capabilities — can solidify and grow their relationships with SMB customers. Fintechs are closing the gap by broadening the financial services they offer, which makes it even more imperative for traditional FIs to improve their digital capabilities.

Solving the unique pain points of smaller SMBs and larger SMBs with slightly different approaches can also help FIs cement these customer relationships. Smaller SMBs found pivoting to an all or mostly online model challenging. Meanwhile, larger SMBs benefitted from the tech transformation, but they found credit hard to come by with local or regional FI lenders. FIs can find opportunities in lending as they always have (so long as they meet the needs of their business customers and members), while providing competitive digital experiences to make controlling finances easier for recovering SMBs.

Key takeaway

• SMBs are investing in their businesses, and they are showing how integral tech has become for them by putting their money where it matters. Fully 53% of surveyed SMBs say technology is a key investment priority—opening the door for tech-savvy FIs to grow the relationship.

FIs will enhance their natural market advantage with SMBs if they sharpen their competitiveness across all aspects of their own organization, digitally and otherwise — because SMBs want a one-stop shop for technology, lending, and deposits.

Alkami surveyed 400 small businesses for its recent report, Digital Banking Market Pulse: Small Business Recovery in Light of the FI Paradigm Shift, to understand more about SMBs’ outlook, priorities, and perceptions regarding banking and lending. All survey participants identified as working full time (or self-employed) by a business in the U.S. with fewer than 300 employees; as owner, c-level executive, or finance manager role; and at least involved in the company’s business loan and banking account decisions.

For additional insights, please watch the on-demand webinar, Small Business Recovery in Light of the FI Paradigm Shift.