Traditional banks may need to improve their offerings for small businesses to avoid losing customers to new competitors.

That’s according to a new study from American Banker’s parent company Arigent, which found that companies like PayPal, Square and Chime already have a large share of the market.

“While small businesses remain loyal to their major banking providers and exhibit relatively low levels of switching, most still use multiple organizations to access banking services, which is a significant challenge for new entrants. It offers a welcome competitive access point,” the report said.

The report was released Monday in connection with the start of American Banker’s Small Biz Banking Conference in Nashville, Tennessee.

Of the 358 companies surveyed, 45% said their banking provider included PayPal. The same is true for users of online banking such as Discover and American Express and non-bank fintechs such as Chime, with 30% saying they use Square.

Small businesses are increasingly considering these options, with 67% of respondents saying they would consider using an online bank, 55% saying they would consider using PayPal, and 53% saying they would consider a credit union. increase.

The report also said business owners “have a broader view of banking,” with some respondents saying they would consider technology giants such as Google, Apple and Amazon for their banking needs. says.

Banks could retain more customers if they could invest more in some of the underperforming areas, according to the report.

The top five priorities of the SMEs surveyed were digital banking tools, cybersecurity and fraud prevention, low fees, easy access to bankers, and a wide range of product choices.

On each of these priorities, the banking industry’s performance has been “underwhelming,” the report said. Nearly 60% of customers are “extremely satisfied” with their main bank’s digital tools, access to personnel and breadth of business banking products, and nearly half rate their bank’s cyber attack protection and fees highly. I’m here.

Improving access to bankers does not necessarily mean building more branches. This was an “important” factor for only 9% of companies when choosing a provider. Rather, small businesses want their banks to be able to easily talk to their employees by phone, chat, video, or otherwise.

Such one-on-one advice may give regional banks and credit unions an edge over larger banks, according to Ian Benton, senior analyst in Javelin Strategy and Research’s Small Business Banking and Payments division. It says.

In a report last month, Mr. Benton noted that smaller depository institutions often have “greater and more detailed knowledge of their localities and communities” and the ability to provide more personalized assistance. They can also “fight back against the digital dominance of big banks” by embracing partnerships with core providers and third-party vendors, he wrote.

“By providing digital account opening, cash flow tools, billing capabilities, products for freelancers and sole proprietors, and strong digital customer service, [financial institutions] We can catch up with the big banks,” Benton wrote.

Nearly half of respondents to Arigent’s survey said they use their banking provider’s mobile app daily, and 28% reported using it weekly. Few said they visited a branch or his ATM every day, but one in three said he does every week.

According to the report, banks and credit unions cannot be relied on to provide the four main products used by small businesses. These traditional products are business checks, credit and debit cards, payroll processing, and payment card processing.

“Financial institutions may miss out on other, more profitable lending products as their business grows and relationships deepen, so their product offerings should not stop there,” the report said.

Such additional products include retirement accounts, wire transfer services, treasury and cash management, money market accounts, and even investment banking.

Despite the shortcomings of banks, the survey found that small businesses appear generally satisfied with the services they provide. Two-thirds of SMEs say they are ‘very satisfied’ with their main bank, and 30% say they are ‘somewhat satisfied’.

Overall, business owners report being optimistic about the future, with 86% of respondents saying they are somewhat or very optimistic about the future of their business. 90% of his 20+ respondents said he was profitable, compared to 71% of small businesses.

Nearly three in four respondents said inflation was one of their top three challenges, with supply chain disruptions and labor recruitment and retention also garnering significant mention.

Acquiring new customers will be the top priority for small businesses in the year ahead, according to the report. “However, inflation concerns are forcing them to take action to reduce costs and increase efficiency by investing in technology,” it said.

Arigent conducted an online survey from July 18th to August 5th, surveying small business stakeholders across a range of industries. Respondents own a business or are directly involved in a company’s banking relationship.

The companies averaged 129 employees and averaged $8 million in revenue, but nearly a third of them made less than $1 million.

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