Merrill Lynch & Co. is wrenching small-business financial assets away from banks using a full-featured cash management account with pricing that makes it hard to resist.
The account presents an appetizing array of common bank services - including a line of credit up to $5 million, credit card processing, and cash sweeps into a choice of five money market funds. But its best feature may be the low $150 annual price tag.
Although the account was introduced a decade ago, some bankers claim that Merrill Lynch appears to be stepping up efforts to snare new customers. And that's giving them one more reason to feel bested by the nation's largest brokerage.
"I'd like to start a fire in every one of their offices," said Richard M. Carey, senior vice president for small-business banking at First Commerce Corp., New Orleans. "They're the strongest competitor for my best customers."
Merrill Lynch refused to discuss its marketing strategy or assets captured by the product, called the Working Cash Management Account.
Several analysts said that the cash management account challenges banks to respond or lose some often overlooked but profitable customers.
"Whoever comes out with a consolidated program for the small-business owner will be a major victor," said John P. Sousa 4th, a brokerage consultant based in Henderson, Nev. "To me, it's as close to a no-brainer as it can get."
But many banks have found their own bureaucracies make it difficult to integrate the same services as seamlessly and cheaply as Merrill, several bankers said.
Les W. Dinkin, principal at NBW Consultants, Westport, Conn., said that Merrill Lynch has become a major player in small-business cash management. By concentrating on businesses that don't require coin and currency services, "they're clearly trying to skim the cream of small-business accounts."
But the product's greatest threat to banks may come once Merrill, its foot firmly in the small-business door, gains retirement plan and investment product business.
"It's giving them more sources of money under management," said Perrin H. Long Jr., an independent securities industry analyst based in Darien, Conn. And as some of the small businesses prosper, their owners present additional targets for brokerage sales, he said.
Despite its savvy, Merrill Lynch isn't spooking some bankers who believe relationships remain as important as snazzy products.
"Small-business customers rely on the expertise of businesses like ours that have built a reputation as business consultants," said Nancy Graves, senior vice president for retail banking and brokerage, Mark Twain Bancorp, St. Louis. "That's what our lenders get paid to do."
Besides, she said, loans are the basis for choosing a financial service provider. "Businesses want the credit piece, then the other relationships follow."
But First Commerce's Mr. Carey has seen first-hand that Merrill is learning that a good product may not be enough.
Last year the brokerage hired one of his best lending officers and spent nine months educating him on the investment side.
"They're training their people well to handle the whole relationship," he said.
