Consumers have increasingly drifted away from credit unions, leaving many organizations looking for new ways to compete in a crowded market. Business banking services can be a significant revenue stream for credit unions, and small- to medium-sized businesses are especially receptive to the tailored services that credit unions can provide. In his latest report Credit Unions in Business Banking Part 1: An Industry Eyes Opportunities to Grow, Ian Benton, Senior Digital Banking Analyst at Javelin Strategy & Research, examines the state of small business banking and the ways credit unions can make an impact with business owners and their community. Positive Sentiment Every year, Javelin surveys 1,000 small business owners to gain insights into their banking behaviors, including their primary and peripheral relationships with banks and credit unions, as well as the financial products they use. This year’s survey found that roughly 4% of these businesses consider a credit union to be their primary financial institution, which is on par with last year’s figures.

However, the percentage of businesses with any kind of relationship with a credit union increased from 6% to 9%. The prevailing sentiment among the businesses surveyed was increasingly positive toward credit unions, even among those banking with large institutions. Roughly 31% of businesses that bank with the top 5 bank said they would be likely to switch to a local credit union if it offered comparable small business banking solutions. “The general market feel about credit unions was extremely optimistic,” Benton said. “Small businesses believe credit unions have a better sense of their local community and their specific industry.

However, they are also often concerned about the quality of a credit union’s digital banking services.” The Path to Digital Maturity The top 20 banks have the resources to develop cutting-edge mobile banking solutions, a level of innovation that many credit unions struggle to match. There is also increasing competition from digital banking platforms like Square and PayPal. The financial services environment has become increasingly fragmented, leading many small businesses to maintain multiple banking relationships. “It is sort of an arms race for digital banking tools,” Benton said.

“The digital aspect has been a pain point for many credit unions who don’t have updated digital banking solutions. However, there is a way they can compete. Third-party providers like Q2, Fiserv, NCR, and FIS offer small-business banking solutions that can give credit unions a path to digital maturity.” Vendors can provide credit unions with the tools to help businesses do everything from invoicing and payment acceptance to cash flow analysis and payroll.

By leveraging third-party providers, credit unions can be the central hub where a small business owner can manage their organization’s finances in one place. A Proactive Posture Most credit unions that offer banking services typically provide standard checking accounts. They may also offer commercial loan products, but these are often separate from the business account. To maximize their small business offerings, credit unions will need to transition from a defensive to a proactive mindset. “There is a common refrain among the credit unions that offer business banking—they are frustrated that they often lose businesses as they grow,” Benton said.

“They are losing their best members because they just don’t have the types of products that a mid-market business is going to need, or even small businesses in niche industries. Mid-market businesses need products like lockbox banking or sweeps accounts, in addition to digital banking.” Third-party providers can also help credit unions in expanding their services to include these products, as well as setting up entitlements that allow business owners to delegate financial responsibilities to their staff. “All of these aspects fall under the rubric of moving away from a purely defensive posture, where a credit union is simply trying to retain its member base,” Benton said. “They will have to be more aggressive and provide a better set of services for small businesses.

Then the next hurdle will be to overcome the perception gap that often exists with credit unions—many of their own members don’t know their institution offers business banking.” Leaning In As credit unions transform, they should never lose sight of what makes them unique. Credit unions are often much more familiar with local businesses and their owners. Not only are they able to offer better customer service, but they can also potentially offer better pricing. “It’s about leaning into being a credit union and understanding that they are often better equipped to look out for the financial health of their members,” Benton said.

“Many of the businesses that have credit unions as their primary financial institution are newer and smaller. That means credit unions can play a significant role in driving small business growth, which can impact the whole community.” 0 SHARES 0 VIEWS Share on FacebookShare on TwitterShare on LinkedIn

By wesley grant
Sep 13, 2024 00:00
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