Barlow Small Office and Home Office Study: Mobile and Payments

There is a significant business market that is being ignored by almost every major bank. Many know this market as the small office/home office (SOHO), non-employer or personal business segment — generally thought to be businesses with less than $100,000 in annual sales revenue.

Today, November 14th, at 1:00 pm ET/10:00 am PT, we will host a #SOHOStudy Twitter Town Hall with colleagues from  Barlow Research and Digital Insight. In advance of this event we wanted to share some insights from Barlow’s research on mobile and payments.

Let us know what you think about the data and we look forward to seeing you on 11/14 at 1:00 pm ET. If you have not yet registered yet, you can here.

Please view the infographics below and download a PDF with additional data here.

Barlow SOHO Study Mobile Infographic

Barlow SOHO Study Payments Infographic

How Are You Helping Students Manage Debt?

Paying for the college experience is a huge undertaking for both parents and students chipping in on the costs. On average, college students today can graduate with about $25,000 in debt. How are you helping the families of students manage their finances on their educational path? How can you help guide them to make better decisions and provide them with the services to ease the process of paying loans and planning for college costs?

An infographic from Consolidated Credit breaks down how paying for collegiate education has changed over the years and the realities that face today’s graduates.

How are you helping relieve your college students’ debt? Let us know by tweeting at @Bankingdotcom, emailing us or responding in the comments below.

 

Generational Student Debt by Consolidated Credit

Banking.com, Barlow Research and Digital Insight to Host Twitter Town Hall on November 14th

Banking.com and Barlow Research SOHO Twitter Town Hall

In conjunction with Barlow Research and Digital Insight, we will host a Twitter Town Hall on Thursday, November 14th to discuss Barlow Research’s recent study of the Small Office/Home Office (SOHO) market. The Twitter Town Hall will discuss the survey results and how they tie into current banking trends, including  financial management, payment and credit card behaviors, mobile and digital banking habits.

Barlow Research recently completed a comprehensive, multi-sponsored study that gathered the information needed to segment the SOHO market, examine their financial management, payment and credit card behaviors, measure the value of the SOHO customer, analyze product usage and explore business Internet banking and mobile device habits. Banking.com will be hosting a Twitter Town Hall to discuss the study results, how banks are currently serving consumers and answer any questions about the study.

The Twitter Town Hall is open for all our readers to join and participate in the conversation. To join us and/or learn more about the event, see below

Steps to Join:

  • Twitter Town Hall: Go to www.tweetchat.com. Log in using your Twitter ID.
  • Enter the hashtag to join the conversation: #SOHOStudy
  • You can also follow the hashtag (#SOHOStudy) using Twitter applications such as Hootsuite or Tweetdeck 

Details:

  • Date: Thursday, November 14th
  • Time: 10:00 am PST/1:00 pm EST
  • Hosted by: Banking.com Staff (@bankingdotcom), Joel Mueller, Research Analyst, Barlow Research (@BankingResearch), John Barlow, President, Barlow Research (@JohnRBarlow) and Digital Insight (@Digital_Insight)
  • RSVP/Add to your Calendar: You can register for the event via Eventbrite and add a reminder to your calendar. See Eventbrite link here

Additionally, if you are interested in submitting a question prior to the Twitter Town Hall, please DM us on Twitter.

We hope to “Tweet” with you on November 14th!

For more on the study, visit our earlier posts on the topic.

 

The Haves and the Should-Haves

Small business and younger, tech-savvy consumers—these are two market segments that couldn’t be more different. Yet for our purposes, at least, they could be seen as representing two sides of the same coin. For both, there are big obstacles and even bigger opportunities. The key to success on both fronts is to get smarter about what we’re doing.

First, consider the sheer size of the small business market. In a word, it’s big. In fact, with $6 trillion in revenue each year, it’s the second largest economy in the world. That is one huge pie, with profitability enough to go around for everybody. That said, it’s only a ‘market’ in the loosest sense of the term—with some 28 million companies around, it’s too diffuse to identify specific patterns. Besides, it’s a target that’s constantly moving. Thanks to the constant emergence of new online and mobile capabilities, routine best practices and fundamental human behaviors alike keep shifting.

But here are some numbers that should stick with us. Only 14% of small business owners currently use their financial institution’s cash management/business banking solutions. Sad as that sounds, our customers spend 5.4 billion hours each year doing taxes (it takes less time to produce every car, truck and van in the country). And finally, let it be noted that a stunning 66% of small business owners still use personal bank accounts for business.

So that’s what they’re not doing. To get a snapshot of what they could be doing, consider the generational shift. A Digital Insight study of 27 financial institutions found that 84% of mobile bankers fall into what we call the ‘Gen Y’ and ‘Gen X’ categories (to make some of us feel a little older, remember that Gen Y alone will account for close to half of the nation’s personal income within the next 10 years.) This is one ripe demographic.

And how does this translate into tech-savvy behavior that benefits them and us? Online banking customers have 13% more accounts than their offline counterparts. In fact, online banking customers conduct 59% more debit card purchases and have a 7% higher annual retention than offline customers. Going one level deeper, consider the difference in log-ins: for online banking users, the number is 9.73; for online and mobile users, it’s 18.87; and for online, mobile and tablet users, it’s 29.05.

We may be sick of hearing it, but mobile is a particularly big deal. These consumers conduct 40% more monthly debit card purchases than online non-mobile consumers. Even more significantly, mobile consumers access their financial information 65% more frequently than online non-mobile users.

Underlying all these changes is an even more fundamental shift, and it’s from consuming credit to managing cash. Basically, business customers of every kind want simplified workflows with greater access to financial information and tools, ranging from payments capabilities to asset management. Do traditional cash management solutions do the job? Or are they too complex to meet emerging business needs?

Now for the good news. Nearly 80% of consumers name their bank or credit union as their most trusted online destination to manage finances. According to the Tower Group, business owners’ use of online financial services has risen 17% in just the past year. Online services are among the top three reasons businesses choose their financial institution in the first place (but we warned: Barlow Research tells us that nearly half of business online banking customers would switch banks for better online banking functionality).

So here’s the future of financial management. To get smarter about profitability, credit unions must get to manage every facet of customers’ financial lives. There’s a ton of research telling us this—of the 88% of consumers who now pay bills and transfer funds online, 62% would like a single place to manage their complete financial picture, regardless of where the information originates, and an unbelievable 94% of TurboTax for Online Banking users who used direct deposit for their refund sent it directly to their host financial institution.

It’s easy to get overwhelmed by all the changes taking place in our customer base. If the move to online banking was a big change, then the adoption of mobile tools and services is a seismic shift. Yet the wealth of data we have at our fingertips also offers a clear view into the multitude of opportunities that comes with that transformation. Consumers who actively use technology-enabled services, particularly those offered through mobile channels, undeniably represent higher account ownership, balances, retention, and debit card purchases. They will find, join and be loyal to financial services providers that offer customizable tools and services to meet a wide range of evolving needs. The onus is on us to get smarter about how to meet those needs.

Where Does Your State Stand? The Financial States of America

Ever wondered how your local community is affected by changing financial climates? This interactive infographic from MoneyChoice.org breaks down how people are faring across the United States. Take a look and let us know what you think!


Source: Financial States of America

Q&A with Barlow Research about the Small Office/Home Office (SOHO) Market

We got the opportunity to speak with John Barlow, President, Middle Market Banking Program Director, at Barlow Research about the Small Office/Home Office (SOHO) market. Barlow Research recently completed a comprehensive, multi-sponsored study that gathered the information needed to segment the SOHO market, examine their financial management, payment and credit card behaviors, measure the value of the SOHO customer, analyze product usage and explore business Internet banking and mobile device habits. For more on the study, visit our earlier post and infographic.

Q: Why is the SOHO market the fastest growing business segment in the U.S. and how can banks take advantage of this opportunity?
A:
From 2002 to 2010, the SOHO market had a 25 percent growth rate and now includes over 20 million entities nation-wide. Residual effects of the recession, such as increased unemployment and involuntary part-time employment, have aided in the growth of this market by increasing the number of people who started their own businesses because they had their hours cut, had been laid off or had to find supplemental employment. Another fundamental facilitator in the growth of the SOHO market is the rising costs of having employees and the decreasing cost of technology. With the technological advancements in the past 10 years (increased Internet functionality and mobile capabilities), starting and sustaining a SOHO business has become much more feasible, allowing many Americans to run small firms to supplement their income or generate earnings from a passion or hobby. Lastly, with the baby boomer generation nearing retirement age, retirees may be looking to do something they are passionate about while simultaneously supplementing their retirement savings. Nearly a quarter of the SOHO population is 65 years or older.

Banks already have an advantage in the SOHO market: approximately seven in 10 business customers are SOHOs that are already in the bank. Taking advantage of this market comes down to learning how to provide adequate service to this market to maximize its potential.

Q: What financial/banking advice would you give someone looking to start a SOHO?
A:
Many SOHOs would benefit from help with the “business part” of being a business, which often includes putting together the paper work to become a legal entity, figuring out tax requirements, tracking expenses and bookkeeping. Individuals interested in starting a SOHO firm should document their vision. Write down what their intentions are as a business (or not-for-profit), define their goals and determine how they intend to meet their goals. Because this market is so diverse, each SOHO will have different expectations and different measures of success. With a baseline business plan mapped out, it will be easier to talk to people about their firm and discuss their intentions with financial institutions.

Q: What are the top products and services they need from a bank?
A:
Providing ways to make business operations simple and easy is key in the SOHO market. This may include offering or educating SOHOs on products such as online banking, mobile banking, mobile remote deposit capture, etc. Also, providing SOHOs with products to help perform tasks such as managing cash flow, keeping records, organizing receipts to track expenses and collecting receivables is important. Since the SOHO market is comprised of predominantly non-employer businesses and over a third of SOHO owners have another job, time is of the essence. The owners of these small firms have to wear many hats. One of these hats is that of accountant and bookkeeper – a role that requires time and a certain level of skill and expertise. Providing a simplistic solution to this pain point will be welcomed. It is important to know that often it isn’t always about providing a specific product as much as providing the right product at the right time. When a buying opportunity presents itself, there needs to be a product that is simple and intuitive for this market to purchase.

Q: What are some traits a SOHO should look for when seeking a banking partner?
A:
A SOHO may want to seek a banking partner that provides information quickly, uses language SOHOs understand, provides simple and concise solutions and operates transparently. When a SOHO owner walks in the door they need to be able to say, “This place is for me.” SOHOs want to know that their bank understands them. This may be difficult for financial institutions because each SOHO is unique and their individual needs in a banking partner will vary greatly. However, there are simple ways financial institutions can relay that they value a SOHO’s business. This includes being responsive, treating them as a valued customer and being easy to do business with.

Q: How can banks ensure loyalty when working with SOHOs?
A:
To effectively serve the SOHO market, financial institutions need to understand the entire customer relationship, not just the SOHO business relationship. Seventy percent of SOHOs have a personal relationship at the same bank as their SOHO firm. Furthermore, it is common for SOHOs to own other businesses or re-appear at the same bank as a different business if their initial SOHO firm closes. Even though a singular SOHO relationship may appear minuscule, the consumer relationship and/or other business relationships associated with each SOHO must be considered when evaluating the contribution a SOHO makes to the bank.

With the SOHO segment being as large as it is, small shifts in bank switching activity may be significant, so maintaining a loyal SOHO customer base is important. The average SOHO business relationship with their primary financial institution is 11 years on average. Given the tenure of this relationship and personal connection to their primary bank, it is not surprising that being treated as a valued customer is very important to this segment. However, only 50 percent of SOHOs believe their primary bank knows and understands their firm. Efforts to understand your SOHO customers and recognize their firm may help demonstrate that your financial institution values their business.

Q: How can banks increase their profitability by servicing SOHOs?
A:
The SOHO market has been overlooked by the banking industry because many believe there is no value proposition. However, SOHOs appear to look for value first and consider cost second. For this reason, focusing on the SOHO segment can be a profitable endeavor for a financial institution. The needs of a typical SOHO business are simple, but the products they need are in different organizational silos throughout the bank. Herein lies the fundamental problem when it comes to servicing the SOHO market; most banks are simply not organized in a way that caters to the needs of these small firms. Without a fixed place for these small firms and a strategy for recognizing and servicing them, SOHOs are easily lost and the opportunity for the bank ceases to exist.

Individually, SOHO firms do not have high net potential revenues per relationship in terms of fee and balance income. However with the size of the SOHO segment being as large as it is, the net potential revenue of the entire segment is more valuable than the middle market ($10MM-<$500MM in sales). Many SOHOs are planning to remain at their primary bank. Therefore, mining the SOHOs that are already affiliated with your financial institution before focusing on attracting additional SOHO customers and offering simplistic, low-cost business solutions is going to be the more effective strategy. Pairing a segmentation strategy with a deeper understanding of the financial behaviors of the SOHO market is the only way to target profitable relationships and develop a strategy for servicing these small firms.

Q: How can banks tailor their services to provide options for a diverse range of businesses?
A:
Although it is important to know and understand your SOHO customers and be an expert in the SOHO market, it is far more important to be an expert in the banking business. Offer simplistic solutions that support fundamental business operations and minimize pain points. There is not a one-size-fits-all product for this group. Many financial institutions often feel like they already service the SOHO segment because they “offer a free checking product.” Unfortunately, it’s not that simple. The SOHO space is as diverse as it comes and it not only takes collaboration among silos within the bank but a commitment to the SOHO market at an organizational level. Most banks may already offer the products needed to service the SOHO market, but don’t know the pain points within each SOHO segment to provide solutions.

Q: How can banks best market their SOHO expertise?
A:
The line between consumer banking and SOHO banking is often blurred; so marketing business banking offerings to your consumer banking customer base will provide education to the right population of current and future SOHOs. Many banks have a misconception that their SOHO customer base is content with the current consumer products they use. This isn’t entirely true – SOHOs may simply be unaware of the various business products and services that are offered by their primary bank. This could be because most business products are not targeted specifically to this market.

Getting in front of this segment will require advertisements in their common market places and through networking/communication channels frequented by SOHOs such as blogs and social media. Having a SOHO location on a bank’s public-facing Web site and branch signage also creates an inviting business space for SOHOs.

About John Barlow: John Barlow, President, Middle Market Banking Program Director
John Barlow_Barlow Research John Barlow was a founder of Barlow Research Associates, Inc. in 1980 and is responsible for overall business strategy and research methodology.  In his position he works with clients to understand their strategic needs and develops research methods for multi-client and proprietary research assignments. John graduated from the University of Iowa in 1972, and is a graduate of the ABA School of Commercial Lending and past President of the Minnesota Chapter of the Bank Marketing Association. Prior to Barlow Research he worked for Norwest Bank where he was a commercial lender and manager of marketing activities for the commercial, international and trust divisions of a regional bank. John and his wife Kathy, also a principal in the company, live on Lake Minnetonka near Minneapolis. He is an avid E-scow sailor.

 

 

Online Banking Engagement: Data from Digital Insight

Digital Insight has been conducting a comprehensive and ongoing study of financial institution customers. From these studies, the company has been able to provide a deeper view of banking customer behavior across several categories, such as mobile and online banking. Earlier this year, we examined mobile banking behavior and now we are taking a look at how online banking is an integral engagement tool for financial institutions. Below are key findings from Digital Insight’s online banking study, and you can view a more in-depth analysis here.

As we continue this series of data, we will be publishing blog posts on additional topics on Banking.com. *For information on the on the methodology used for the study you can download the PDF

Fast Facts: What You Might Not Know About Prepaid Cards

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services industry. Topics span TARP, Dodd-Frank, insurance, lending, retirement savings and more. This iteration focuses on the ins-and-outs of prepaid cards: a flexible financial alternative for underbanked individuals.

A flexible financial alternative for underbanked individuals, prepaid cards are among the fastest growing payment products in the United States, proving to save money both for users and the American taxpayer.

FACT: Prepaid cards provide an effective alternative for millions of consumers who don’t have access to a checking account and, increasingly, a convenient additional financial tool for many consumers who have checking accounts. Almost $1 trillion in payments from employers and the government are made to 80 million adults in the U.S. who are financially underserved. For many, replacing paper checks with direct deposits is not an option.

FACT: Prepaid cards allow the 11 million households in the U.S. without bank accounts to be part of the mainstream American economy, make electronic payments, and receive electronic fund transfers.

FACT: A 2012 study finds that 73% of prepaid card holders are highly satisfied with the product, 61% prefer prepaid cards to credit cards, and only 37% prefer to use cash.

FACT: Prepaid cards are inexpensive to use. According to a 2011 Bretton Woods study, prepaid cards only cost users an average of $185 per year, while it costs on average $273 per year to use a basic checking account and $256 per year to use a check casher.

FACT: A 2012 Pew study found that prepaid cards are less expensive than checking accounts for financially inexperienced consumers.

FACT: Prepaid cards are widely accepted. Cards from large brands, such as Visa and MasterCard, can be used everywhere debit cards are accepted and at millions of ATMs worldwide.

FACT: Prepaid cards are safe by allowing consumers to make purchases and pay bills without carrying large amounts of cash. In addition, prepaid cards frequently provide zero liability to the cardholder if it is lost or stolen.

FACT: Nearly all prepaid cards in the U.S. are issued by banks, as a 2012 survey found 47 percent of banking customers are more likely to use prepaid cards if offered by their financial institution.

FACT: Prepaid are useful for all kinds of people in a variety of contexts. For example, they facilitate inclusion and build financial literacy skills by helping families limit spending and stay on a budget.

FACT: Prepaid cards are used by people of all income levels. Of those who are likely to use prepaid cards, 26.4% earn less than $35,000 per year, 36.7% earn between $35,000 and $65,000 per year, 22.1% earn between $66,000 and $100,000 per year, and 14.8% earn over $100,000 per year.

FACT:  Governments are turning to electronic payments because they are efficient and cost effective. Prepaid cards allow those without bank accounts, including 4 million Social Security recipients, to still receive their payments in an easy, electronic way.

FACT: Prepaid cards save taxpayer dollars. While it costs the federal government $1.03 to issue each paycheck, it only costs 10.5 cents to issue an electronic payment. The U.S. Treasury estimates it will save more than $1 billion over 10 years by switching from a check-based system to electronic payments with a prepaid card option.

FACT: Prepaid cards save paper. The U.S. Treasury estimates it will save 12 million pounds of paper over 5 years from making Social Security payments electronically.

FACT: A spring 2012 study finds that 95% of recipients are satisfied with the Treasury’s electronic benefit payment system and 93% would recommend it to friends and family.

You can view all previous Fast Facts at www.RoundtableResearch.org. Copyright © 2013 The Financial Services Roundtable, All rights reserved.

Taking Advantage of the Largest and Fastest Growing Business Banking Segment (Infographic)

There is a significant business market that is being ignored by almost every major bank. Many know this market as the small office/home office (SOHO), non-employer or personal business segment (generally thought to be businesses with less than $100,000 in annual sales revenue). With over 20 million entities, the SOHO market is over twice the size of the small business segment ($100K-<$10MM), representing seven out of ten businesses under $10MM in annual sales. This is not only the largest business segment, but the fastest growing as well. Barlow Research recently completed a comprehensive, multi-sponsored study that gathered the information needed to segment the SOHO market, examine their financial management, payment and credit card behaviors, measure the value of the SOHO customer, analyze product usage and explore business Internet banking and mobile device habits.

For more information, you can view the press release that was issued here.

Money Sense: Financial Literacy in the US

Did you know that 2 in 3 adults don’t prepare written or digital household budget or that spending went down 3 percentage points in 2013?

Gauging the financial literacy of your members and customers is a necessary step to offer them the best services, tools and education to manage their money.

Below is an infographic from Online Accounting Degrees which details some interesting statistics about financial literacy in the US.

What do you think? How are you serving these knowledge gaps?
Dollars and Sense: How Wise Are We With Money?

Source: Online Accounting Degrees