Unequalled Opportunities in Small Business Banking

At a time when financial institutions are focusing on improving revenues, enhancing customer experiences and finding untapped opportunities, the small business segment may provide the best option for growth.

Similar to consumer digital banking, there is a tremendous opportunity to increase engagement, deepen banking relationships and generate revenue from moving small business relationships to digital channels. Despite a willingness to pay for digital banking services, however, financial institutions too often give away small business digital banking services. There is also a negative perception of digital banking services from small businesses that must be overcome.

To assess the missed revenue opportunities provided by small business, RateWatch and Simon-Kucher & Partners have conducted annual studies on product design and pricing of mobile banking applications for small business customers. This year’s 3rd annual research, “Monetizing Digital Banking Products for Small Business Customers,” provides insights beyond the mobile channel to include digital banking as a whole. The study also looks at the selling process for small business digital solutions.

The report reveals insights into the small business customer, including their mobile usage, banking behaviors and utility scores on 24 different banking services. It also shares insights on their willingness-to-pay and estimates the likelihood-to-purchase at a series of price points for any given service bundle.

Behavioral segmentation is used to identify six distinct clusters of small business customers which helps in the determination of product use, pricing and positioning.

The following are key findings based on the small business customers surveyed:

  • 34% have never used mobile banking, even though their financial institution offers it
  • 69% do not have a positive perception of mobile banking services offered by their institutions
  • Certain small business clusters have significantly higher willingness to pay for digital services than others
  • Customer satisfaction is directly correlated with the rate at which digital innovations or new digital features are introduced
  • There is a lack of ‘leader’ features and high variance across all digital banking services, suggesting a bundling approach that is logically coherent but still allows for customization

“The small business customer is a huge untapped market for financial institutions,” said Jamie Zussman, a business development associate for RateWatch. “This report provides data and a framework for how financial institutions can deepen their understanding of this segment and create compelling packages and services for them.”

“We need a systematic and structured approach to designing, pricing and selling mobile banking solutions,” said David Chung, a director at Simon-Kucher & Partners. “When these steps are managed separately, we find sub-optimal products that fail to meet revenue and profit goals and fall short of addressing customer needs.”

Similar to consumer digital banking, there is a tremendous opportunity to increase engagement, deepen banking relationships and generate revenue from moving small business relationships to digital channels. Despite a willingness to pay for digital banking services, however, financial institutions too often give away small business digital banking services. There is also a negative perception of digital banking services from small businesses that must be overcome.

To assess the missed revenue opportunities provided by small business, RateWatch and Simon-Kucher & Partners have conducted annual studies on product design and pricing of mobile banking applications for small business customers. This year’s 3rd annual research, “Monetizing Digital Banking Products for Small Business Customers,” provides insights beyond the mobile channel to include digital banking as a whole. The study also looks at the selling process for small business digital solutions.

The report reveals insights into the small business customer, including their mobile usage, banking behaviors and utility scores on 24 different banking services. It also shares insights on their willingness-to-pay and estimates the likelihood-to-purchase at a series of price points for any given service bundle.

Behavioral segmentation is used to identify six distinct clusters of small business customers which helps in the determination of product use, pricing and positioning.

The following are key findings based on the small business customers surveyed:

  • 34% have never used mobile banking, even though their financial institution offers it
  • 69% do not have a positive perception of mobile banking services offered by their institutions
  • Certain small business clusters have significantly higher willingness to pay for digital services than others
  • Customer satisfaction is directly correlated with the rate at which digital innovations or new digital features are introduced
  • There is a lack of ‘leader’ features and high variance across all digital banking services, suggesting a bundling approach that is logically coherent but still allows for customization

“The small business customer is a huge untapped market for financial institutions,” said Jamie Zussman, a business development associate for RateWatch. “This report provides data and a framework for how financial institutions can deepen their understanding of this segment and create compelling packages and services for them.”

“We need a systematic and structured approach to designing, pricing and selling mobile banking solutions,” said David Chung, a director at Simon-Kucher & Partners. “When these steps are managed separately, we find sub-optimal products that fail to meet revenue and profit goals and fall short of addressing customer needs.”

Small Business Experience Gap

The research found that there is a gap between what small business owners want from their digital banking experience and what financial institutions are offering. This gap in delivery has impacted everything from digital banking utilization to the revenue potential from this important segment. It was also found that small business customers surveyed said their satisfaction with mobile banking is correlated directly with the rate at which digital innovations or new digital features are introduced.

At a time when financial institutions are focusing on improving revenues, enhancing customer experiences and finding untapped opportunities, the small business segment may provide the best option for growth.

To get deeper insights into the findings of the research, we conducted an exclusive interview with David Chung, Director at Simon-Kucher & Partners.

Your research indicates that, while the number of firms that have used online banking has increased, the level of usage has actually declined. With mobile banking, the number of users actually declined, while the heaviest users used their app more. Can you explain?

David Chung: On mobile, the increased usage of heaviest users was likely due to banks increasing their incentives to move transactions to their most cost-efficient digital channels. In some cases, we’ve seen channel-based pricing where lower cost to serve channels are priced lower than full-service channels. The decrease in number of users was likely due to customers not appreciating the value of the services offered through mobile, and therefore, have opted to use those channels less.

 

What can financial organizations do to improve the utilization numbers of both online and mobile banking in your opinion?

David Chung: We believe that the continuous utilization of a digital application is largely driven by intrinsic effects – creating the right experience within the application with the right features at a fair price will guarantee the increase in usage.

What was the biggest surprise in your research this year compared to last year?

David Chung: A big surprise for us was that online and mobile use has shown a slight decreased since last year. We believe that this indicates that current services are not delivering the desired value. Banks need to rethink their product offering and design approaches to define how to better serve their customers.

What features or functions do you believe need to be either added or improved to make the perceived value of online and mobile banking for small businesses stronger?

David Chung: Generally, we believe that improving or adding more features/services to help small businesses manage their cash flow more conveniently will increase the value perception of online and mobile. If we look at the top 10 most valuable features, for the most part, the top 10 did not shift much in position from year to year, which suggests that the existing offering is not quite meeting expectations in either value perceptions, value delivered, or price perceptions. Additionally, a couple of features that tested fairly well included “Monitoring fraudulent activities” and “Pay vendors/suppliers and receive payments from customers via bill pay, ACH, wire, or mobile wallet”, both of which could add to the convenience of cash management and monitoring for small businesses.

One other hypotheses that came out of our recent conversations with business banks is that banks need to do a better job onboarding small businesses onto their mobile services, whether it be through better value communication or enhanced training.

What should organizations do to improve the monetization of small mobile banking offerings?

David Chung: This is really the key steps that we outlined in report: understanding customer needs, designing and packaging products targeted at those needs, pricing them fairly based on willingness to pay, and communicating value effectively through the sales and engagement channels.

Closing the Revenue Opportunity Gap

According to Simon-Kucher, almost 75% of banks are not able to generate the amount of revenue they deserve from small businesses. The research finds that organizations often believe that their products are commodities and that they lack pricing power, especially in an era of consumer activism and regulatory intervention. A low rate environment, as well as high consumer and media scrutiny of pricing changes, compound their pricing challenges.

As a result of the above forces, financial services organizations are generating 25% less profit on average. Simon-Kucher believes the key to small business success is the integration of various products and innovations into a single product portfolio ecosystem. The result of product bundle optimization is a win-win-win situation where customer experience is improved, front-line sales find it easier to sell products, and price becomes a secondary question. A structured framework provided in the research includes:

  • Step 1: Understanding customer needs, using segmentation based on behavioral attributes.
  • Step 2: Designing and pricing the offering to define the price tags for bundles and individual features.
  • Step 3: Selling the bundles leveraging customer behavioral economics combined with digital brochures and tools.

With numerous ‘urgent’ priorities, most banks are struggling to keep up with banking transformation. At a time when revenues and an improved customer experience are top priorities, using product portfolio modeling can provide the best solution. “Financial institutions must recognize the hidden value of their digital solutions in order to effectively monetize their portfolio. By taking measured steps to assess their offering, pricing, and sales approaches, they can more easily meet the challenges of the rapidly evolving digital banking landscape,” concluded the research study.

[“source-theguardian”]