DALLAS -- Barely two years after moving into Texas, Banc One Corp. was straggling with a reputation among small businesses as a do-nothing, out-of-state bank.

Fighting to salvage its reputation in 1990, the bank sent Robin Wantland on a three-month mission to study how others serve the demanding but lucrative market.

The Texas banker found that small firms wanted convenience, access and responsiveness -- but seldom got it.

Today, the good news for small borrowers is that there is no shortage of lenders.

But, he says, that is ultimately bad news for banks as competition ranging from community banks to the Money Store fight for market share, with profitability the most likely casualty.

"I haven't heard the words "credit crunch" in probably a year. Competition is already to the point where the market is feeling pretty well served," said Mr. Wantland, senior vice president and manager of the bank's small-business unit in Texas.

"With everybody chasing the market, it's really going to drive down margins and everyone is going to figure out what segment they can serve best."

The result: Mr. Wantland says that within two years, nonbanks will be more aggressively chasing the business, threatening everything from credit lines to the depository accounts that give banks their fattest profits.

For now, though, he sees the fight for customer loyalties as pitting mostly community banks against superregionals like his own Columbus, Ohio-based Banc One. He says both offer distinct advantages.

"This [business] is the last bastion for profitable returns, so you are going to see more attention, from banks," said Mr. Wantland, who chairs the American Bankers Association's small business banking committee.

"This market has traditionally been serviced by local independent banks. The real activity is that more regionals are starting to get into this market."

Bigger banks have pushed into the market as margins on middle-market commercial loans have thinned and technological advances make it possible for banks to serve the historically cost-intensive small business market more efficiently.

In the case of Bank One Texas, the push last year resulted in an 8.1% increase in small business loans of $1 million or less in the last year. Including unfunded commitments, he said the subsidiary had more than $1 billion in credit extended to small firms.

Mr. Wantland said the key was to decide what customers wanted. "We had to come up with the products, the processes, and the people to address this business," he said.

The key for retail-oriented Bank One has been to-focus on the importance of convenience for time-starved small business owners. That means an emphasis on everything from far-flung branches to telebanking or products that make borrowing easy.

"The good news is this market can be pretty well served with simple products. They want convenience. They want accessibility. But that doesn't necessarily mean brick and mortar," he said.

"That can mean check-access lines of credit. That can mean flat-fee checking accounts. To a certain extent, you are consumerizing commercial products."

For example, the company also offers 100% lease financings as an alternative to bank lines and a PC-based cash management program -- both user friendly versions of products traditional aimed at larger borrowers.

To get these products to work required a significant investment in upgrading and consolidating the unwieldy computer system the bank inherited from its 1988 acquisition of the failed MCorp.

The new system had to help the bank not only serve its new products, but also help market them through a direct mail campaign.

Bringing all three aspects together was important, he said, because "you're in essence winning the right to be heard."

Winning that right pays dividends. Scott Paly, owner of RealTime Staffing and RealTime Consulting of Dallas, says he told everyone he knows to go to Bank One.

After looking for a loan to help open his temporary-help agency in 1990, he met with an officer from the bank's small business services department.

"The reason we did business with Bank One is because they were more aggressive than the other banks," Mr. Paly said.

Customers are not the only ones noticing. Robert Raven, chairman of State & Federal Associates, an Arlington, Va.-based consultant to Banc One and others, says his client's early homework on what customers want will pay off longterm.

"They appear to really understand what they want to do and what the market really needs," he said. "They are one of the more small-business-focused banks we have come into contact with."

That focus has helped create interest in some of the bank's new products among potential customers.

The main product that small businesses look for is credit, which Mr. Wantland says is often the most costly and least profitable part of the relationship.

"To get the relationship in the door in most cases, a loan will be either a loss leader or break-even for you," Mr. Wantland said. "And then you will make money on the rest of the relationship."

While banks cross-sell other products, ranging from 401(k) retirement plans to business credit cards, the biggest profits are earned on demand depository accounts.

Ironically, while checking has become a low-margin business among consumers, it is the opposite among small businesses.

The reason: small companies historically keep several weeks of operating cash on hand, providing banks with reliable low-cost deposits that give them a good spread.

However, even that business is at risk to nonbank competitors. Merrill Lynch & Co., which has made a push into small business lending, can offer customers checking through its cash management accounts.

More critical, said Mr. Wantland, is the advent of alternatives to the traditional payment system which could accelerate the threat to the rich margins of depository acCOunts.

"I don't want to sit here fat and happy and say I've got the only payment system that somebody is going to have to use and that because I've got that, then the DDA is going to stay with me," he said. "I'm not .sure I want to feel that confident about that.

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