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.

Written by Banking.com Staff