Business Banking as a Strategic Imperative for Banks
Classic principles of strategy and resource allocation coupled with recent SVB/FRC news have elevated the importance of the Business Banking Segment. Recent advances in technology can help banks win in the SMB space.
August 10, 2023
By Steve Dow, CEO & Co-Founder
Let’s start with a blunt observation. Banks only do four things. Truly. When you strip it all back, banks have four primary activities:
Safe Keeping of Deposits
Assess and Extend Credit
Facilitate Money Movement
To further simplify the banking industry, let’s acknowledge there are three distinct customer segments:
Small-to-Medium Sized Businesses
Putting on a strategy lens, there are lots of fun matrices one could construct with these two dimensions of Activities and Segments.Perhaps the most interesting – and, topical – is to consider profit potential and differentiation.
Given the simple set of products that banks can offer (Deposits, Loans, Payments and Advice), there’s a huge premium to provide a differentiated offering. The last 5-10 years have seen great advances in payments and lending innovation. Accordingly, we now enjoy real-time payments, tap to pay, and sophisticated treasury offerings. Leadership in these new products has been ephemeral and they are effectively table stakes.
Deposits, on the other hand, have seen little innovation and remain a commodity…and, can move quickly as highlighted in March of this year.
Advice remains the only greenfield in the bank’s quiver.Sure, some banks have dabbled in robo-advisors and rudimentary “insights” from transaction data, but customer response, usage and value have been underwhelming. To summarize:
On Profit Potential, let’s consider the three primary customer segments and the relative opportunities:
Now, about that matrix we mentioned earlier! In examining where banks can differentiate on product and see the greatest growth potential, the conclusions write themselves:
So, if you are a resource allocator at a bank – or, responsible for assessing growth opportunities, it’s clear you should be placing chips in the SMB segment and leading with advice.
To emphasis that point, J.D. Power published a report last fall that noted:
“76% of businesses are interested in receiving financial advice from their bank, but just 15% receive comprehensive advice” (Link).
So, if your bank wants to win in the high-potential SMB segment by plugging the gap in offering those highly-desired advisory services, the Monit team would love to have a conversation!