Retail banks are focusing on small business lending as a revenue stream in a competitive market. But what exactly do small business owners want from banks? Digital banking options are high on their list.
Digital demand is on the rise
Small business owners are big into digital according to Accenture’s 2016 North America Digital Banking Survey—our annual survey of over 4,000 US and Canadian consumers including 254 small business owners. The branch remains central to small business lending, but digital options are emerging as alternatives. While 39 percent of respondents accessed a small business loan from a branch in the past year, 16 percent used an online channel.
Small business owners rely on online channels across the loan lifecycle—from research through application completion. Our survey results show that 41 percent go online for product literacy and education, 40 percent go online for rate shopping and 35 percent complete loan applications electronically.
Millennial small business owners are even more apt to turn to digital channels than other age groups. Interestingly, small business owners of all ages are more tech-savvy than average survey respondents, using digital tools such as smartphones, tablets and wearables more often.
The role of alternative lenders
Small business owners’ digital comfort level has contributed to market share gains among alternative, online lenders in recent years. Many of these companies entered the market during the recession when lending among traditional players slowed. Online lenders continue to offer an enticing value proposition to small business owners: streamlined experiences, faster approvals and lower costs.
Tapping untapped opportunities
For retail banks to compete with these lenders—and even better, beat them at their own game—they cannot ignore customers’ digital demands.
The good news is that retail banks start with strong advantages over online lenders. They have existing customer relationships, rich customer data insight, and a branch network that supports one-to-one human interactions that consumers crave. In fact, 65 percent of respondents say they are most likely to go to their primary bank for a small business loan in the future.
Yet the stakes are high for retail banks. Small business lending does not create as much “relationship stickiness” for customers as other lending products like personal and home loans do. For example, only 44 percent of US small business customers purchased other banking products and services from their primary bank.
Big decisions for small business loans
More digital banking options could turn this around for banks. As they develop digital strategies for small business loans, banks must ask critical questions:
- Development. Will we invest in an in-house small business lending platform?
- Partnership. Will we partner with online lenders to leverage an existing platform?
- Specialization. Will we develop targeted loan products for specific small business demographic segments?
- Value. Will we extend the loan experience to include value-added services that improve education and/or convenience?
The imperative to think digital in small business lending is clear for retail banks. With so many ways to accommodate consumers’ digital banking demands, the place to start is with the right strategy.
Explore Accenture’s 2016 North America Consumer Digital Banking Survey to learn more about consumers’ banking preferences and behaviors.