BOSTON-If credit unions combine an investment in technology with a strategic shift, they can tap into a market they historically have not penetrated: small businesses.
That is the conclusion of a study from research firm Aite Group, which found 20% of U.S. credit unions believe they are better positioned to grow their relationships in the small business space today than they were before the start of the financial crisis.
"Many small businesses are leaving banks and giving credit unions a try for the first time because they are frustrated with banks," said Christine Barry, a research director for Aite Group. "Small businesses feel banks are distracted by the financial crisis or are dealing with new regulations and have their heads down, so service levels have dropped."
But Barry cautioned that smaller community banks are benefiting from similar sentiments among small business as there is a "a movement away from the larger institutions."
Credit union penetration into the small-business segment is low, and limited primarily to microbusinesses, Aite Group's research found. Even the 1,000 largest U.S. credit unions, which it said tend to be "more commercially focused" than their smaller CU counterparts, often offer only limited business member services.
This is slowly changing as a growing number of credit unions have begun to view winning the small business segment as critical to their future success, the study concluded. Some 17% of credit unions forecast that small businesses will comprise between 11% and 30% of their total member base three years from now, compared with the current 4%.
Importance Of Technology
Technology is a "critical component to the future success" with small business members, Barry said.
"Remote deposit will enable them to expand their geographic footprint, and go after new members that are not in their typical footprint and compete with larger institutions," she advised. "Remote deposit capture is becoming an expectation as banks offer it to consumers, so it has a strong value proposition for businesses."
Investments in the online channel will be "critical," she continued. If CUs are serious about moving past mom-and-pop businesses they must offer "real business banking capability."
Many CUs are serving businesses with consumer online banking platforms, she noted. When there are multiple employees in a business there might be one person creating payroll and another who needs to approve it, and those capabilities just are not available with consumer platforms.
Mobile banking and social media should not be overlooked, Barry counseled. Mobile banking has the same value proposition as remote deposit capture in terms of convenience because people want to operate their business when they are not in the office. Social media helps CUs strengthen their brands and reach younger people.
While technology is a critical component to strategy, Barry said beyond simply deploying new initiatives "credit union management needs to shift their mindset."
Membership growth is down and the average age of a CU member is climbing, she pointed out.
"Credit unions need to try out new technologies, use new channels and expand their product portfolio to meet the needs of new members. They have relied on credit products historically, but need to offer new types of business checking, prepaid cards, remote deposit capture, electronic invoicing and help with payroll-products not traditionally offered by credit unions."
The need for a new direction is evidenced in Aite Group's study, which found more than 50% of small business relationships start with a deposit product rather than a credit product.
According to Barry, CUs must continue to try to understand the needs of small businesses. "Year after year when we talk to these people they say they are not understood. Not every business is the same, so they need an individualized treatment."
