Are banks ready to actually serve SMBs? 

Contrary to popular belief, SMBs are open to paying for value-added services that will help them become more efficient, especially if they can get them from their primary financial provider. And a bank is their primary financial services provider in most cases. In the same vein, SMBs expect their banks to offer a wide range of features to better manage, grow, and secure their businesses.

For instance, one way that financial institutions can deliver on the features in greatest demand by SMBs is through an industry-specific approach to their product portfolios. A small business in retail requires tools for e-commerce, marketing, and inventory management, whereas a business owner in professional services is more likely to prioritize cybersecurity, travel tools, and expense management solutions. Meeting these different sets of demands by customizing a product suite around vertical-specific needs can be a winning strategy. 

Mastercard works with financial providers to help them service small businesses through tailored solutions around specific payment challenges.

“We are seeing more and more banks stepping up to do just that, coming to partners like Mastercard to help them better attune their strategies and elevate their SMB customer experience,” said Jane Prokop, executive VP and global head of small and medium enterprises at Mastercard. “Within just the last few months, we have seen an increase in requests from financial institutions looking to build differentiated SMB value propositions and better cater to this critical segment.”

Source: Mastercard

Mastercard’s role in providing services to FIs for the SMB segment is anchored around a few verticals addressing some of the basic needs of small businesses, including enabling smaller merchants to receive payments digitally and helping them manage cash flow. 

When it comes to banks, another way they can bring value to their SMB customers is by considering the unique set of barriers that minority-led small businesses or women entrepreneurs face. For instance, 80% of women-owned businesses with credit needs are either unserved or underserved. Research also shows that women-led startups outperform those led by men in almost all areas. This might make the case for why more prominent financial institutions likely need to start thinking about serving minority-led small businesses on a larger scale.

Mastercard launched its Strivers Initiative program enabling issuers and partners to customize solutions, especially for small businesses led by black women entrepreneurs to meet their financial needs. Minority-led SMB owners are provided access to funding and mentorship, as well as digital and cyber tools to help them build and sustain their businesses online and grow.

“Together we [Mastercard and FIs] are co-developing selected products and features to give female business owners access to tailor-made solutions that address their key priorities, from continuing education to mentorship and cybersecurity tools,” noted Prokop.

Given last year’s downward pressure on non-interest income, banks developing their strategies for the second half of 2023 are eyeing to capture and capitalize on the $400 billion small and medium-sized business market. In fact, 85% of banks are now of the view that greater success with small businesses is critical to their overall success, according to a new report.

Community banks are looking to leverage digital-first, relationship-based banking to expand and monetize their share of the SMB market — considering their share of primary business banking relationships shrank 43% since 2018. With the right product offering and strategy in place, community banks see this as a path to profitability and a big business opportunity to try in 2023 – especially at a time of regulatory headwinds. 

65% of banks and credit unions are planning to expand services to small businesses going forward. This can act as a differentiator for community banks as they may stand to gain from creating tailored solutions for SMBs, even making their deposit relationships stickier with them down the line.