Small Business: Respect and Dedication

In a recent blog on Banking.com, we explored how small businesses don’t always get the respect they deserve from the banking world. There’s no question that this sector of the economy is always vital, and increasingly optimistic. In fact, the number of businesses that report being ‘better off’ jumped from 16 percent in 2009 to 33 percent in 2012. This is also a market rich with possibility: on average, small businesses hold deposits four times greater and loan balances 15 times greater than retail banking customers.

And yet, this market continues to rank near the bottom in banking satisfaction.  So what’s going on—and what can the industry do to make thing better? The new J.D. Power and Associates 2012 US Small Business Banking Satisfaction Study, a comprehensive research report that identifies and highlights the situation described above, digs deeper into the problems and identifies many of the pain points.

As mentioned in the previous blog, credit is still the primary issue, but it’s not the only one.  The J.D Power study lays out more fundamental problems too. In particular, while small businesses are sometimes lumped in with retail banking, there are major differences between the two.

First, small businesses expect greater competence and responsiveness from their bank, since their needs are more complex needs and they bring greater value. Second, relationships are everything: they want an account manager who understands their needs and provides customized solutions. In both these areas, the study shows, banks come up short.

In routine transactions conducted both face-to-face and on the phone, small business customers say their experience either mirrors that of retail customers or doesn’t even rise to that level. By the numbers, 21% of retail banking customers have problems in a given year; 36% of small business customers say the same. Similarly, only 43% of small business customers say their assigned account manager (if they actually have one) ‘completely’ understands their needs. The latter problem is particularly acute: the J.D. Power study outlines the ways in which a good relationship with an understanding account manager makes a significant difference in terms of discussing loan options, receiving regular updates, etc.

The problems extend past business issues to even more basic headaches. The data shows that small business customers are less likely to experience in-person best practices than retail customers when they visit a branch, are less likely to be greeted by name, and are more likely to experience longer wait times.

The study does take into account equivalent concerns on the banks’ side: It’s perhaps unrealistic to expect that every account manager will have a full understanding of every small business account they handle, and it is only natural to assign bank personnel to accounts where they offer the greatest value. However, there’s also no question that there is plenty of room for improvement here.

The study does lay out some remedies. First, while there can (and should) be some discussion around whether to have a dedicated commercial-only window in particular branches, there needs to be more training staff-wide on paying greater attention to small business customers. Second, in the era of Big Data, we have more information at our fingertips now than ever before on each account and the market in general. This should be used more effectively to develop a greater focus on this critical market segment. Finally, while many institutions fully intend to create small business specialists within call center groups—with experienced representatives and specialized training—the final product often falls short. If, as the J.D. Power study makes clear, “a dedicated small business team is established—and the data suggests it should be—it needs to be sourced and managed appropriately.”

Ultimately, of course, any list of best practices runs the risk of being too generic, the same problem that frequently afflicts this market. The small business market is undeniably both vast and fragmented. It’s also vital—and for the banking industry’s purposes, potentially very lucrative.  It deserves respect, and that will come through customized solutions backed with knowledge and dedication.

* Now in its seventh year, the U.S. Small Business Banking Satisfaction Study measures small business customer satisfaction with the overall banking experience by examining eight factors: product offerings; account manager; facility; account information; problem resolution; credit services; fees; and account activities. The 2012 study includes responses from nearly 7,246 small business owners or financial decision-makers who use business banking services. The study was fielded from August 10, 2012, through September 10, 2012

For more information about the J.D. Power and Associates 2012 US Small Business Banking Satisfaction Study, please contact: Holly Zagresky at (248) 680-6319 or via email at Holly_Zagresky@jdpa.com

Small Business: Perception vs. Reality

In the most recent election cycle, like most others before it, the one sector of the economy that got the most attention was small business.  This is the future, we were told by every candidate—the very backbone of the nation’s economic infrastructure, the greatest source of employment and innovation, the foundation of America’ greatness.

The new J.D. Power and Associates 2012 US Small Business Banking Satisfaction Study paints quite a different picture. It uncovers an environment where optimism co-exists with uncertainty, and where tapping capital resources remains an unnecessarily onerous task. Far from being lauded, this is a market  that is looking for support, deserves it, but too often doesn’t get it.

There’s no question that as the economy continues to recover, however slowly, small businesses will play a critical role. Those already in the market are on track to keep growing, and this will turn help fuel the creation of others. Indeed, the study highlights a degree of optimism in this sector.  There’s a clearly perceptible spike in the percentage of small business banking customers who report being better off now than they were a year ago. It’s still far from a majority at 33 percent, but that’s still a 10 percent jump over last year’s corresponding number, and even better news compared to the 15 percent who now say they’re worse off.

“There is a long road ahead to economic recovery, but it’s positive to see that small business banking customers report they are better off this year over 2011,” said Jim Miller, senior director of banking at J.D. Power and Associates.  “Since 2009, we have seen the percentage of those who reported to be ‘better off’ jump from 16 percent in 2009 to 33 percent in 2012.”

For banks in particular, there’s even more good news.  The JD Power study reports that, on average, small businesses hold deposits four times greater and loan balances 15 times greater than retail banking customers. The people running the businesses are doing well too: these customers carry higher levels of personal banking business than the average consumer.

And finally, there’s the profit factor. Perhaps contrary to conventional wisdom, profit margins associated with small business customers are typically higher than those associated with larger corporate banking customers.

However, the gulf between perception and reality extends into other areas as well, with less happy results.  As the JD power study makes clear, this market doesn’t get the respect it clearly merits. For the record, there is a higher level of overall satisfaction in the most recent report, but that’s still cold comfort. In fact, it still ranks near the bottom among the financial services businesses that the study covers (only mortgage servicing ranks lower). Even the credit card business, which long languished at the bottom, has now moved past small business banking in satisfaction to levels enjoyed in the retail banking sector.

The elephant in the room, of course, is credit, or rather the lack of it. Oddly, the hard numbers don’t necessarily show a decline here: 82 percent of small business loan applicants say got approved for their most recent loan, the same as the year before.  However, a recent research effort conducted by the Small Business Administration that went a level deeper revealed that lending  this sector has been falling steadily since 2008, the year of the banking meltdown. This is likely  one factor behind the declining Availability of credit rating, which is down from 6.71 (on a 10-point scale) last year to 6.65 in this year. That’s actually  one of the lowest-rated attributes in the 2012 study.

Again, all the clichés ascribed to the small business sector—hardy, entrepreneurial, innovative—are real. This is a risky proposition, and we all know just how many new ventures don’t survive. At the same time, as every good candidate will point out in every stump speech, small business is exactly what will fuel overall economic recovery.

In the next piece, we’ll look more closely at the pain points in this market. But for now, the unmistakable takeaway is that small businesses are healthier than they’ve been for a while, they’re vital for economic growth, and there are significant profit margins involved. The market is good for companies, good for individuals, and good for the economy. Given those considerations, the banking satisfaction levels identified by the new report are lamentably low, and it should be the industry’s goal to do better.

* Now in its seventh year, the U.S. Small Business Banking Satisfaction Study measures small business customer satisfaction with the overall banking experience by examining eight factors: product offerings; account manager; facility; account information; problem resolution; credit services; fees; and account activities. The 2012 study includes responses from nearly 7,246 small business owners or financial decision-makers who use business banking services. The study was fielded from August 10, 2012, through September 10, 2012.

For more information about the J.D. Power and Associates 2012 US Small Business Banking Satisfaction Study, please contact: Holly Zagresky at (248) 680-6319 or via email at Holly_Zagresky@jdpa.com