Community banks are missing an opportunity to boost fee income by not expanding their small-business offerings, a consultant suggested.

Though banks still have a lock on supplying deposit services and credit to small-business customers, they are less well placed in selling insurance and other noninterest products, said Darren S. Parslow, manager at Financial Institutions Consulting, in New York.

Many banks do not offer these products because they are hesitant to take on the expense and risk of new business lines, Mr. Parslow said. And those that do are still fighting the public's perception of bankers as just lenders.

Speaking here before the New York Bankers Association's annual retail conference, Mr. Parslow shared results from a survey of 350 small businesses that his company did for American Banker.

In 1997, banks controlled about 94% of the $43 billion deposit services market and 63% of the $17 billion of small-business credit.

However, small businesses spent $182 billion on financial services last year, and the products in which banks are strong total only one-third of that. The rest went to fee-based services such as bookkeeping, consulting, and planning for retirement and succession, which have been dominated by the likes of GE Capital Services, he said.

"The perception out there remains that banks are only lenders," he said. "Banks can offer any of these products, but customers don't understand that."

For banks interested in expanding their product offerings but fearful of the risks, Mr. Parslow suggested forming alliances with existing providers. That way, "banks can gain the expertise without the start-up investment," he said.

An alliance also limits an institution's loss should the venture fail.

Partnership opportunities are available through bank trade groups. The Independent Bankers Association of America, for example, offers discount brokerage, mutual funds, and retirement plans to members through its IBAA Financial Services Corp. subsidiary.

And there are plenty of other private-sector partners. One is Aetna Retirement Services, which said last month it was expanding the division that dispenses its products through banks. Aetna Retirement Services distributes annuities, mutual funds, and products such as 401(k) plans through about 200 banks nationwide.

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