How technology can revive small business relationship banking

Relationships are what banking is founded upon—especially when it comes to small businesses. For many years, bankers fostered relationship with their customers as a way to increase revenue and create long-term business opportunities. However, in the last several years, relationship banking has waned and many customers no longer seek out the advice of their banker. Before the financial crisis, business owners ranked their banker third on the list of top trusted advisors. Today, bankers have fallen to number seven. With limited access to credit after the worst of the financial crisis, many business owners have lost confidence in banks and their bankers.

Additionally, technology has given customers more self-sufficiency when it comes to retail banking services, thereby reducing banker-customer interaction. Having a suite of convenient, web-based products and services is now expected by the retail customer. However, the same trend did not occur with banks’ commercial clients until recently.

In a recent survey, 88% of banks said they plan to grow small- and midsize-business market share in the coming years. However, many are already not meeting the needs of these businesses—financially or otherwise. In addition to capital, businesses also need other advice—better accounting software, efficiency improvements, etc. A daunting process for many, small business owners look to their banks to provide financial advice and information to help successfully obtain a loan and optimize their businesses, yet few banks deliver. This leaves many small businesses to wonder, how well do banks really know their customers? Recent surveys indicate that a majority of business owners are dissatisfied with their banking relationship, with more than one-third looking to switch banking service providers.

Contrary to what many think, technology can be used to facilitate relationship banking by giving bankers information about their commercial customers to help them better serve as trusted financial advisors. Offering customer-facing technology solutions will be a key element to securing and maintaining long-lasting relationships with small businesses.

A return to relationship banking—by functioning as proactive advisors—is necessary to bettering bankers’ standing with commercial customers.

Prior to the recession, quantity trumped quality in terms of interactions and revenue opportunities, largely due to an increased focus on residential mortgages. Business owners came to feel that bankers didn’t understand their businesses. Salespeople are not a replacement to trained career bankers with a solid education in the art of cultivating lasting business relationships. Business owners want a banker who understands the difference between different types of businesses, and one who can speak fluently about the different factors influencing the bottom line.

Bankers who can offer a variety of services and products that are seemingly tailor-made to alleviate their particular pain points—such as accounting or financial reporting—will make themselves an invaluable resource. In fact, commercial and industrial lending requires regular reporting, monitoring, and related risk-management procedures to ensure borrowers are fiscally sound and maintain creditworthiness. With relationship banking, bankers will need to make recommendations to improve the financial health of a business. The financial technology sector is booming—with the area of core banking services a target for disruption, so to speak. 

Today, there are many great financial technologies developed for banks and their commercial and retail clients, ranging from accounting solutions to financial intelligence and process automation. Smart banks will educate themselves on their options and adopt solutions that not only bring efficiency to internal processes—but that assist in fostering outward-facing relationships as well.

Business owners can use between 12 and 15 bank products and services throughout a company’s lifespan, yet the national product per customer ratio average at a given bank is only around 2.5. There is clearly a disconnect here between what borrowers need and banks are able—or willing—to offer. Simply putting standard procedures in place to ask businesses what their needs are could result in more—and continued—revenue for lenders.

A relationship banker should be educated on a variety of internal product partners to provide best practices and solutions for the client. For example, if a borrower is prone to seasonal changes in sales, inventory, etc.—the banker could employ financial intelligence tools to pinpoint when these shifts occur, preparing the business for revenue changes ahead. Of course, this means that the banker is responsible for identifying weak spots and crafting solutions, a dynamic that is counter to the mainly transactional view of customer relations even just a few years ago.

By focusing on adding value through superior customer experience and technology, financial institutions will be better positioned to attract new small business banking clients and expand business with existing clients.

Finagraph is a provider of an automated financial intelligence tool that provides advanced analytics and data verification to financial institutions and their commercial lending customers and portfolio companies.