Even as the U.S. banking industry aggressively targets the small- business marketplace as a high priority for business development, their results are falling short of the mark.

It's no wonder that they see huge potential in this market. There's nothing "small" about it. U.S. government statistics show that businesses with sales of less than $10 million comprise 98% of all businesses in the United States. Their need for capital-and other services offered by the banking community-is well documented.

But despite U.S. banks' best efforts to beef up product offerings to appeal to small business, they have struggled to capture a significant share of this market.

Small-business customers continue to defect, citing a lack of attention and poor customer service. Nonbank competitors are giving banks a run for their money. And banks are scrambling to provide the types of convenience- driven products, such as sweep accounts and PC banking, that small-business customers are demanding.

What's holding banks back from fully mining the potential of this marketplace, industry experts assert and studies conducted by FTR Inc. confirm, is not so much lack of product, but lack of the internal processes to get the job done in a timely and efficient manner.

At the root of this problem is the banking industry's apparent lack of understanding of the small-business customer. The tendency is to treat these accounts more like the large commercial accounts that for years have been the banks' bread and butter. However, small businesses behave more like retail accounts.

It comes down to several shortcomings on behalf of the banking community:

Lack of segmentation strategy. All small-business customers are not created equal. Yet many banks continue to use the one-size-fits-all approach to delivery of personal service and banking products to all small businesses. In fact, differences exist among segments of business owners with regard to their preferences, behaviors, propensities to buy, delivery channel use, and profit potential.

Narrowly focused sales strategies. Critics of banks' small-business initiatives say they always miss grabbing as much of these customers' business as possible and do little to maximize the cross-selling opportunities. Many banks understand that the business owner's personal and business banking needs are inextricably linked. But they can't seem to act on the opportunities that creates. Organizations would be better served by approaching small-business owners as a complete customer interested in a spectrum of products available through various banking products.

Lack of cohesive sale and management process. Too many banks limit the financial rewards for their sales force. In order for banks to successfully build multifaceted relationships with their small-business customers, banks must compensate their employees for their efforts.

Inadequate training. Experts in the field are increasingly advising banking organizations to make sure that properly trained personnel are placed strategically throughout the branch system to deal with the needs of small-business customers. Lack of such trained personnel is a major stumbling block for most banks. Our study showed that more than 25% of respondents provide no training for business bankers.

Expectations are high for small-business banking initiatives-and they should be. While banks have taken giant steps to better secure their market position and fortify competitive boundaries, their success depends on their ability to radically alter prior ways of thinking and to effect broad- sweeping changes.

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