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I need to understand why KC business owners would switch their financial partner.
Small and medium-sized businesses have growing demands for their finacial institutions. They want technology options like mobile and online banking, and faster, more streamlined, actionable financial data reporting. More than technology, though, research suggests that these companies value a relationship and partnership with their banks - the knowledge that a financial institution sees the business as a partner instead of just a customer can go a long way toward motivating a business to switch institutions. My full rundown of these ideas and more is below.
OVERVIEW
Kansas City-specific information was hard to come by, so much of the info below is at the national level (or examines regional banks in general, not just in the Kansas City area). My research suggests that these ideas apply no matter the region, however. To bring the focus back to KC, I looked at the top small business banks in that area to see what they offer small and medium-sized businesses. That rundown is at the end of my report.
WHAT SMBS WANT
SMBs have several technology requirements that can motivate them to switch banks, especially as more millennials open their own businesses. Online lending platforms and mobile banking are givens, but streamlined financial data reports are another option that many banks aren't taking advantage of. One survey found that over half of SMB owners want easily-accessible consolidated financial data available instead of the static reports they often get from their institutions. If that data can be generated automatically and presented in accessible data dashboards, that's even better. Over 25% of small business owners in that same survey actually reported using consumer banking services instead of business services, since the consumer services often get these technology options before business services do, even at the same bank.
Better user interfaces, and processes for money moving and employee permissions, can also be factors in a business's decision to switch. Banks that use technology to streamline and simplify the loan application and approval process can attract more customers. Some banks are even introducing APIs for small business clients, but these don't seem to be huge factors yet.
However, many of these technology options are quickly becoming standardized across most banks. As a result, the client's relationship with its bank is growing in importance, and the bank's ability to maintain an "ongoing, consistent relationship" is a growing factor in the decision to switch or remain with the same institution. Technology can also play a role here, as account managers can reach out (or be reached) via social media or other technology, but community bankers from various regions have found that connecting face-to-face (knocking on business' doors, taking owners to lunch) is also effective at relationship building. J.D. Power's most recent survey of small business owners found that those who had an account manager assigned by their bank had much higher satisfaction levels and net promoter scores than those that didn't.
In this respect, size does often matter. Regional or community banks can have a more individualized relationship with their clients and better knowledge of local markets and trends. One survey found that while just 10% of small business owners polled used community banks and 23% used regional banks, community and regional banks had higher satisfaction levels among those businesses than the large national banks (93% satisfaction with regional banks, 90% with community, and 87% with national banks). A US Small Business Administration survey had much more dramatic results -- they found that small businesses had an 80% satisfaction rate with small banks against 61% with national banks (online-only lenders fared the worst at 46% satisfaction).
INFORMATION SOURCES
Small business owners have several information sources available to them in looking to make the switch. Many blogs exist that focus solely on small business finance, and the SBA's own blog often gives advice on this topic. The Better Business Bureau also rates banks (though these ratings are more general and not necessarily business-focused). Some sources also publish rankings of banks for small businesses, though these tend to focus on the larger national banks. A few banks, like Wells Fargo, are serving as their own information sources by creating small business portals to provide banking information and advice.
MAKING THE SWITCH
Simple credit availability might be enough to persuade a bank to actually switch financial institutions -- in 2015, "only 45% of businesses with fewer than 500 employees received the full funding amount they requested from their banks." Banks that can accelerate a loan decision and offer credit quickly could win more customers.
Beyond that, the knowledge that a bank will be a long-term partner with decision-making ability and financial expertise goes a long way toward helping a small business make the switch. The combination of relationship building and financial knowledge is key to a better bank-business partnership.
EXAMPLES — KC'S TOP 5
The top five SBA lenders in Kansas City are US Bank, Alterra Bank (now First Business), Simmons First National, Arvest Bank Group, and Bank of Missouri. Here's a brief rundown of each bank's small business offerings.
US Bank (a national lender) offers business checking and savings in addition to payments processing, payroll, and insurance. They also offer mobile and web banking platforms.
First Business is a community bank in KC focused on small businesses. They offer a personal banking relationship, focused account manager attention, and access to a community of industry experts in addition to the standard business banking services.
Simmons First National is a regional bank that offers business checking and savings, business credit and debit cards, and mobile banking options.
Arvest is another KC community bank with the standard business banking features. Their online offerings are fairly robust however, letting businesses send money, invoice customers, and get account information.
The Bank of Missouri is another regional bank offering "the personalized service you expect from a community bank." Their options are fairly standard -- checking, savings, payment processing, etc.
CONCLUSION
While technological options like mobile loan applications, online data dashboards, and banking APIs can be important in motivating a small business to switch financial institutions, the most important factor is the personal, individualized relationship a business can expect from its bank. Community and regional banks are often better than national banks in this aspect, as they can give more personalized attention and specific market and community knowledge.