As recently as 1990, small business customers basically belonged to banks-and lucrative customers they were, generating a steady stream of fees and interest income from checking accounts through credit products. But some of that territory has been slipping out of their grasp.

"What the banks have not been proactive about is pricing credit," says Libby Chambers, a New York-based partner at McKinsey & Co. "They've been inflexible, for instance, in pricing credit lines, which opened up a window for credit card companies. They've also been unsophisticated in extending credit based on the fundamental credit characteristics of the proprietor."

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