Banking, SMB Finance

As SMBs veer away from traditional brick-and-mortar branches, what will traditional banks do?

  • Despite the digital banking boom, traditional banks like JPMorgan are charting a different path, planning to open new branches in the coming years.
  • SMBs, on the other hand, are positioning to transition away from traditional brick-and-mortar branches and toward platforms with a stronger digital focus.
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As SMBs veer away from traditional brick-and-mortar branches, what will traditional banks do?

Despite the challenges, small businesses are pushing forward. Recent data shows a collective 25% uptick in median revenue over the last 18 months for these businesses, reflecting their optimism for the future. However, this doesn’t discount the fact that SMBs still confront their fair share of challenges.

Financial management remains a key challenge for small businesses, whether it involves accessing capital for growth or optimizing banking procedures to save time and costs. 

A recent report by Bluevine reveals that 34% of small businesses report spending over a week’s worth of work hours annually at local branches to manage their banking activities. As a result of prolonged durations and unmet needs, roughly one-third (32%) of SMBs have previously switched their primary business banks.

Source: Bluevine

While several factors drive small business owners to switch from traditional branch-based banking to entirely digital offerings, time and transparency emerge as the most significant. Almost half of the key areas where SMBs aim to save time in 2024 are in banking and finance. 

“Time savings from digital banking is a huge value proposition for our [SMB] customers,” said Bluevine CEO Eyal Lifshitz. “And when I talk about transparency, I am not only referencing straightforward terms on fees for various banking activities, which are critically important but also the holistic view business owners have of their financials.”

The increasing demand for digital offerings within the small business sector is also reflected in the revenue spikes of digital banking platforms targeting SMBs like Bluevine, which witnessed an uptick in small business deposits, exceeding $1 billion last year. The company attributes its deposit growth to its Business Checking Account, introduced three years ago. With no monthly fee feature and an expanding suite of integrated business applications, the offering has become the preferred choice for many small business owners.

Is SMB moving to digital a threat to incumbents? As the market heads toward an anticipated reduction in interest rates, SMBs increasingly prioritize streamlining processes through digital means to save time and costs. “By and large, business owners hope that the efficiencies achieved by optimizing operations in 2023 act as a force multiplier, allowing them to gain even more from each dollar they invest in their companies in 2024,” Lifshitz noted.

Consequently, close to half of US SMBs are aiming to expand their access to capital in anticipation of these shifts. Of these, 55% are specifically in the market for a new business credit card, prioritizing features such as lower interest rates on new purchases, cashback incentives, and rewards programs, as outlined in the report.

Despite the increasing popularity of digital banking and lending services, which is altering the significance of bank branches to some extent, traditional banks like JPMorgan are pursuing a different course. Swimming against the tide, JPMorgan Chase is pressing ahead with plans to open 500 new branches over the next three years. 

This strategy could prove beneficial for JPMorgan, leveraging its substantial scale, according to Lifshitz. One of the primary factors motivating this decision is the bank’s ability to draw a significant portion of deposits from customers who prefer physical branches for their banking needs. The Wall Street bank also views the expansion of branches as an opportunity to increase its customer base and promote cross-selling, notwithstanding the substantial overhead associated with managing such an extensive branch network. However, this approach does not align with all bank customers, particularly SMBs positioning to transition away from traditional brick-and-mortar branches and toward platforms with a stronger digital focus.

SMBs are showing a growing preference for partnering with banks and financial firms that can swiftly meet their financial requirements without the need for branch visits, regardless of when, where, or how they conduct business. This inclination is spurred on by the inherent erratic nature and limited scale of their operations, with almost half (48%) of SMBs operating from home or exclusively through mobile platforms.

Lifshitz asserts that a majority of SMBs have grasped the capability to manage various banking tasks online, whether it’s through a computer, smartphone, or tablet. This includes activities like opening new accounts, applying for loans or lines of credit, and transferring significant amounts of funds, which previously required a visit to a bank branch.

“We strongly believe that this is where the future of SMB banking is heading,” added Lifshitz.

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