Market demand for non-traditional services that banks could provide to their SOHO and Micro-business customers

1. Engaging More EffectivelyWith SOHO and Micro Businesses
www.athpower.com
Research Addendum to:
The ath Power Small Business Banking Study™
By Michael J. McEvoy, Managing Director

2. 2
Engaging More Effectively with SOHO and Micro Businesses
TheathPowerSmallBusinessBankingStudy™
This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational
purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of
its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.

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KeyTakeaways
• Many SBOs in the micro business / sole proprietor segment view a significant proportion of
the services provided by banks as largely irrelevant to their business needs
• The segment is largely underserved by banks, with fewer than 1 in 3 SBOs assigned a
relationship manager (RM) and only minimal contact with many who are assigned an RM
• Almost 2 out of 3 of these SB customers often use their personal checking accounts for
business purposes, while almost one-half fund business purchases with their personal
credit card
• Fewer than 1 in 5 small business customers are ‘very satisfied’ and almost one-half are
‘neutral’on the question of whether their bank understands their needs and challenges
• Distinguishing between SB offerings of competing banks is a challenge for business
owners: almost 75 per cent of those surveyed considered their banks’product and services
offerings as‘somewhat similar’or‘very similar’to those of other banks
• A collection of ‘best-of-breed’ tools, provided as a service bundle that would help the
business owner manage and grow their business, would appeal to a majority of SBOs
• Providing online webinars / workshops would allow for a deeper engagement with the
SBO with obvious potential for enhanced loyalty and retention
• A majority of SBOs see their bank as a credible provider of non-traditional services such as
those envisaged in this paper, and more than 1 in 4 would consider switching to a bank
which offered them
• By proving to SBOs they truly understand their needs and are motivated to serve them,
banks will likely improve loyalty and retention, while in the process attracting new
customers away from competitors unwilling to let go of dated business models.
This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational
purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of
its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.

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Q. When you were first opening these accounts, through what sources did you learn about the bank’s business products and services?
Introduction
The‘Disconnect’WithOwnersofSmallBusinesses
U.S. banks have traditionally struggled to serve smaller businesses (defined here as businesses with annual revenue of under
$400,000) and the experience of the past 4-5 years has, if anything, witnessed an even greater‘disconnect’between banks and
small business customers in this segment – typically sole proprietorships, micro-businesses and start-ups. Although large in
number, these smaller businesses provide a formidable challenge to banks seeking to serve them profitably, efficiently and
with relevant products and services. The segment is therefore often underserved or largely neglected by banks and other
financial institutions.
Despite the fact that visits to the branch are at the core of the small business relationship from inception (Figure 1) and continue
to be the most important means for business owners to learn what the bank has to offer them (Figure 2), banks do not fully
leverage the opportunity to meet with small business owners (SBOs) when business customers visit the branch.
FIGURE 1
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purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of
its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.

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What I Want
In a Bank:
“Someone to listen to
our needs and help us
reach our goals.”
- Small Business Owner
(Technology Company)
n=567
Q. What is the primary way you learn about the products and services that a bank can offer your business?
FIGURE 2
This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational
purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of
its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.

6. 6
Banks provide fewer than 1 in 3 SBOs with a business relationship manager (Figure 3) and even when
they do, many business owners report only minimal contact with their assigned banker (Figure 4). There
is clearly room for improvement in the level of engagement with business customers. The economics of
small business banking may not allow for individual attention to most SBOs on an on-going basis, but
there appears a clear need for the relationship between owners of smaller businesses and their bank to
assume a different form from today’s model.
FIGURE 3
n=166
Q. Approximately how often have you met with your business relationship manager?
n=568
Q. Do you have a business relationship manager assigned to you for your business banking needs?
FIGURE 4
This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational
purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of
its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.

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‘IrrelevantProducts’
A source of the‘disconnect’mentioned earlier are the products and services offered by banks and their relevancy to
the small business customer. Most SBOs have little need for more specialized services such as cash management, tax,
payroll or merchant services (Figure 5) – yet many bankers choose to promote them to their small business customers
without learning enough about the business, its stage of development or its current needs. Indeed, many SBOs view
such specialized services as largely irrelevant to their business needs (Figure 6).
FIGURE 5 FIGURE 6
Q. PLEASE INDICATE WHETHER OR NOT
YOUR BANK OFFERS EACH OF THE FOLLOW-
ING BUSINESS ACCOUNTS OR SERVICES AND
IF YOU USE IT.
Q. How relevant do you feel that these products and services are
for managing and growing your business?
This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational
purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of
its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.
What I Want In a Bank: “A bank that is sincerely interested in me/my
business as a customer!” - Small Business Owner (Real Estate)

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Use of Personal Accounts for Business
Even basic business banking products are shunned by some business owners, as they choose instead to use their personal
banking products for checking, debit and credit card business needs. Our study finds that almost 2 out of 3 SB customers often
use their personal checking accounts for business purposes, while almost one-half fund business purchases with their personal
credit card (Figure 7). The use of personal banking products for business purposes occurs even when the SBO holds a business
product equivalent: for instance, 42% of SBOs who use their personal DDA for their business also have a business checking
account. Some business owners may fail to see any real difference between the retail offering and the business equivalent
– other than the fact that fees associated with business accounts can be significantly higher. While the difference between
certain personal and business products may be blurred for some SBOs, distinguishing between SB offerings of competing
banks is an even greater challenge: almost 75 per cent of those surveyed considered their banks’product and services offerings
as‘somewhat similar’or‘very similar’to those of other banks (Figure 8).
FIGURE 7 FIGURE 8
Q.Which, if any, of the following personal banking accounts do you
often use for your business (e.g. for business purchases)?
Q. How similar are the products and services offered by your bank
to those offered by other banks you know of?
This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational
purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of
its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.
What I Want In a Bank:
“Assistanceinachievingmygoals.”
- Small Business Owner (Therapist)

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Overall, it appears that many business owners are
underwhelmed by the products and services on offer at
their particular bank. SBOs view many of the products
offeredashavinglittlerelevanceformanagingandgrowing
their business. They also see little to differentiate one bank
over another. However, business owners indicate that they
would respond positively if their bank were to make an
effort to provide solutions that were better aligned with
their actual business needs: a strong majority, 4 out of 5,
say they would view their bank more positively, as a result
(Figure 9) .
Unsurprisingly, in managing their business’s finances,
many SBOs rely on simple tools like spreadsheets, word
processing programs or personal financial software such as
Intuit’s Quicken. Less than one in four use business-grade
tools (e.g. Intuit’s Quickbooks) to manage their business
finances (Figure 10). The learning curve and associated
cost involved in licensing such tools likely deter some
owners of smaller businesses from venturing beyond more
familiar options, such as spreadsheets. Almost 1 in 3 rely
on online banking account access as their primary means
of managing/monitoring their business finances.
Overall, it appears that many business owners
are underwhelmed by the products and
services on offer at their particular bank.
Non-Traditional Services: Opportunities For
BanksTo‘Reset”RelationshipWith SBO
Q. If your bank actively promoted wider business tools specifically
designed to meet your needs and challenges, how would that
impact your perception of the bank?
Q.Whatdoyoucurrentlyusetomanageormonitoryourbusinesses
finances? Select the one below that you use most often.
This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational
purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of
its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.
FIGURE 9
FIGURE 100

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FIGURE 11
Q. Please indicate how useful it would be to you if your bank offered the following to help you better manage and grow your business.
ToolsForBusiness
More broadly, our research suggests there may be opportunities for banks to expand their relationship with small businesses by
providing services that help owners manage and develop their business. Examples may include tools for supporting day-to-day
tasks, such as generating invoices or creating legal documents or managing the finances of the business. Other types of tools
may be provided to help business owners tap into technologies for uncovering efficiencies (e.g. automated credit monitoring
of customers) or expanding markets served (e.g. tools for developing a Web presence). Of interest to banks – given the earlier
observation that SBOs would view their banks more favorably if they provided relevant business tools (Figure 9) – is that these
types of“tools”or“services”appear likely to appeal to the small business segment.
OnlineWebinars/Workshops
A formidable hurdle for some may be the time and effort involved in learning to use a particular tool. The challenge likely helps
explain the fact that less than one-quarter of SBOs utilize professional financial management tools in managing their business
finances. A possible solution may be to provide basic training, to get customers started, through online webinars or workshops
for SBOs in the use of the bundled tools.
An additional benefit to the bank for providing online webinars / workshops is that they would also allow for a deeper engagement
with the SBO with obvious potential for enhanced loyalty and retention. This may help address an important issue identified
earlier: the current lack of engagement with most SBOs, with few business owners assigned a relationship manager (RM) and
infrequent contact with the RM even when there is one assigned.
This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational
purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of
its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.

11. FIGURE 12 FIGURE 13
Q. Do you see your bank as a credible provider of these kinds of
service offerings?
Q. If another bank offered you services aimed at helping you to
manage and grow your business, such as those mentioned above,
would you consider switching banks?
11
CustomerAppeal
It is legitimate to question whether small businesses would be receptive to the concept of banks providing these types of bundled
services. In fact, a majority of SBOs see their bank as a credible provider of such non-traditional services (Figure 12) and more than
1 in 4 would consider switching to a bank which offered them (Figure 13). There may be an added benefit, too: the customer
experience for SBOs visiting a branch would likely improve if discussion with bankers were more focused on the business and less
on selling traditional bank products.
Being able to offer non-banking value-added services that support the business would help free the banker to develop a more
friendly, trusting relationship with the business owner than may be possible under the current business model. In addition, banks
may find themselves attracting more of the personal accounts of business owners if they provide improved offerings that truly
speak to the needs of the business owner.
This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational
purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of
its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.

12. 12
This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational
purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of
its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.

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We believe that the approach outlined in this paper – of introducing bundled service
offerings that go beyond traditional bank products and services – is worthy of
consideration. ByprovingtoSBOstheytrulyunderstandtheirneedsandaremotivated
to serve them, banks will likely improve loyalty and retention, while in the process attract new
customers away from competitors unwilling to let go of dated business models.
Conclusion
This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational
purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of
its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.
This paper is a research addendum to The ath Power Small Business Banking Study™, an
annual report that provides a detailed assessment of the sales and service processes, product
and service offerings, delivery methods and customer experiences of the nation’s premier
institutions within the Small Business banking target market. To find out more about this one-
of-a-kind market study, please contact Peter Johnsmeyer at +1.978.474.6464, extension 106 or
via email at pjohnsmeyer@athpower.com.
Explanatory Notes:
1. This paper is focused on small businesses with revenue of less than $400,000. All
discussion of‘small business’is referring to this SB segment.
2. Sample size throughout is 570 unless otherwise noted.
3. This study was conducted among a representative nationwide sample of U.S. Small
Business Owners during October 2012.

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