The competition for small and midsize business clients is fierce again among banks, as commercial-and-industrial lending rises thanks to business owners' increased confidence on the prospects for growth.
To attract and retain these clients, some banks are investing in more digital services for this segment or offering more consultative services. For Toronto-based TD Bank, it will begin offering a digital platform it says is a bit of both — and making it free to use.
On Wednesday, TD announced a partnership with the fintech firm BizEquity, which offers a digital business valuation tool that provides market, enterprise and liquidation values for businesses, calculated in real time. After inputting the relevant data, businesses can receive information on their worth and other factors in as little as 15 minutes.
Typically, businesses get this information in preparation for major changes, such as selling their business, buying another business or for estate and tax planning purposes, said Chris Giamo, TD’s head of commercial bank.
“It’s not information they usually pursue proactively since traditional methods of business valuation are usually costly and time-consuming," Giamo said. "We want to provide them access to this information in a convenient manner.”
Giamo said TD Bank will be offering the BizEquity digital platform to both its current clients and prospective clients for free as a way to differentiate itself from its competitors in this space.
The small-business sector “is a competitive landscape,” said Giamo. Giving the service away for free “is an investment in the client experience, and we feel it’s a way to differentiate ourselves. We think this technology is cutting edge and they’re very unique in the service they provide.”
Giamo declined to disclose the nature of the contract with BizEquity.
Beyond the tech aspect, Giamo said the information gleaned from BizEquity can also help relationship managers to provide more consultative advice for business clients.
“A lot of them are looking for their banks to be trusted advisers,” he added. “Especially for businesses with revenues up to $500 million, they don’t have a large board of directors to rely on, so they often rely on bankers to offer that trusted advice. This will enable our relationship managers to provide insights that deliver on our goal to provide trusted advice to business owners that enables them to more accurately develop short-and-long-term goals.”
It’s a strategy some other banks adopted too. Wells Fargo announced it is launching an in-app predictive banking feature for its small-business customers that have business deposit accounts and credit cards. Similar to a consumer version it already offers, the feature provides account insights and personalized financial guidance designed to help business owners manage their money by analyzing transactions, merchant payments and other relevant financial data.
Offering these services to small businesses will be key for banks to stay competitive in this market, said Christine Barry, research director at Aite Group.
“Our research shows that offering tools beyond traditional banking products are really what they are looking for,” she added. “Many go outside of the bank for these services, but they would prefer to have it all under one roof with someone they trust, like their bank.”
It’s also important for banks to offer extra tools to business clients because “they are proving to not be very loyal” Barry said. She noted an Aite Group survey of 1,000 small-business owners found that 15% were likely to switch banks over the next two years — with that figure among millennial business owners even higher.
BizEquity currently has partnerships with five banks, including Royal Bank of Canada, as well as with insurance companies, wealth managemnt tech firms such as Envestnet and media companies. Giamo said the partnership with TD is the first with “a top 10 bank" in the U.S.
BizEquity can also help smaller businesses make sure they are adequately funded, said Michael Carter, founder and CEO of the firm, since many don’t often get regular business valuations due to the time and cost involved.
“Without proper valuation knowledge, many of these business owners will not be adequately funded or have the right wealth or succession plans in place,” he said. “Where we believe all this will go is eventually into risk and credit decisioning for banks. Today business owners literally get no credit for the value of their business.”
For TD Bank, the move continues its trend of seeking to partner with or acquire fintechs to offer new services to clients.
“Anytime you can enhance the customer experience and offer a high quality product you have to consider it,” Giamo said. “Partnerships with nimble and cutting-edge innovative fintechs are always an exciting opportunity for us.”