Tuesday, October 25, 2011

Relationship Trumps Fees for Small Business Bank Satisfaction

At a time when discussion around higher bank fees is at a fever pitch, small businesses value the human touch more than ever and are more satisfied with their banks than they were in 2010 according to the just released J. D. Power and Associates 2011 U.S. Small Business Banking Satisfaction Study.

The study, which ranks satisfaction in the areas of product offerings, facility, fees, account information, account manager, credit services, problem resolution and account activities saw all of these categories except fees improve on a year over year basis.

"Contrary to popular belief that most customers are unhappy with their bank, small business banking customers are more satisfied than last year with nearly all aspects of their banking experience," stated Michael Beird, Director of Banking Services at J. D. Power and Associates. In a webinar done yesterday by the firm, it was emphasized that having a person assigned to the relationship 'who understood their business' was a primary reason for improved satisfaction. It was also mentioned that banks should not 'boil the ocean' trying to be the best in each category, but should leverage relationship managers to improve performance in as many areas as possible. In fact, while missing a single KPI does not impact satisfaction scores significantly, missing 3 or more measures can dramatically impact satisfaction.

Source: J.D. Power and Associates 2011 Small Business Banking Satisfaction Study

Illustrating this point, M&I Bank was the highest rated bank in customer satisfaction this year (and the bank with the greatest increase), yet they also had some of the highest incidence of fees of banks in the study. In yesterday's webinar, it was mentioned that while much of the negative press recently deals with fees, having a relationship manager that could answer questions and discuss fee changes ahead of time went a long way towards maintaining a strong satisfaction rating for M&I and other top ranked organizations..

Source: J.D. Power and Associates 2011 Small Business Banking Satisfaction Study

Other studies reinforce the importance of a strong relationship manager to assist small businesses in navigating  difficult economic and business conditions. An August study entitled, 'Businesses Seek the Human Touch from Their Banks by Greenwich Associates found that the importance of a relationship manager increased by 5% for small business since 2009 and by 11% by mid-sized businesses. And even though the internet is far and away the most used channel for transactions by small businesses, a drop in the value of the internet as an interaction platform also occurred during this period, indicating that business owners are looking for more direct and personal assistance as the business environment becomes more challenging.

Even with this improved satisfaction, the J.D. Power and Associates research and research released in August by The Aite Group entitled, 'Community Banks: Maximizing the Small Business Opportunity' indicated a significant opportunity for banks since small and mid-sized businesses are still willing to transition financial service providers. 

According to the J.D. Power and Associates research, between 10-12% of small businesses say they are likely to switch relationships in the next 12 months. Only between 25%-30% said they would definitely not switch. The Aite Group research is more concerning for banks, since they found that 20% of small businesses would be looking for a new banking relationship in the next two years. The Aite Research also found that satisfaction had decreased in their study from 2009-2011. 

Greenwich Associates consultant Pete Garrison states, “For banks, there is an opportunity to provide added value to customers at a time in which client trust and loyalty remains tenuous. For businesses, our research shows that some of your competitors are in fact receiving proactive outreach from their banks,
who are offering valuable assistance in areas like increasing cash flow efficiencies. If you’re not getting the same type of advice, you should ask your relationship manager why that’s the case. If you find your bank is unable or unwilling to provide this type of advice, explore other options.”

Some of this new business opportunity may come from the largest banks. In all recent studies reviewed, the largest banks in the country fared the worst, with significantly lower satisfaction scores than the regionals, super-regionals and community banks.

Source: Aite Group Community Banks:  Maximizing the Small Business Opportunity, August 2011
Does your bank have a 'high touch' strategy for your small business clients? Do you you have a communication strategy for delivering fee changes that is clear and easy to understand? Do you find a way to reach your clients at least 3 times a year (found to be the tipping point by the J. D. Power and Associates study)?

I'm interested in how your organization is serving this very lucrative market.


  1. Jim,

    I view this issue like global warming. We know it's happening, just not why, and what to do about it.

    I think we all know that small businesses would be loyal customers by using a relationship manager approach... someone that knows the business person and their business. The question is, who is the relationship manager?

    Is it the lender? No because most small businesses don't borrow and if they do, they borrow small amounts or use their credit cards or home equity.

    Is it the branch manager. No because many if not most banks don't have confidence in the branch manager having that level of expertise.

    The bank that wins this segment in their geographies will be the ones that solve the execution challenge, in my opinion.

    ~ Jeff

  2. Interestingly, for most small businesses, J.D. Power found out that anyone is better than nobody. In fact, for the smallest businesses, having a platform person or even a senior teller reach out and discuss the needs of the small business improved satisfaction ratings.

    Obviously, the teller shouldn't reach out to the mid sized business, but having allocations of people to businesses by size of business and making sure there is at least 3x a year connection goes a long way.

    It's not a great mantra, but all you need to do is be better than the bank down the street. A focus and emphasis on reaching out from all levels to as many businesses as possible will make the bank stand out in the marketplace.

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