When Sue Rexford decides to open a banking account for her new venture, Bodhi Tree Therapeutic Massage. she will look for a financial company that can provide two things: convenience and low fees.

"Those are the key factors," said Rexford, a licensed massage therapist who opened Bodhi Tree in South Orange, N.J., in September.

In setting those criteria Rexford is a typical small-business owner. Industry experts and analysts say branch proximity, attractive account rates and fees are among the top concerns cited by small-business owners considering opening new bank accounts.

But Rexford is atypical for a self-employed entrepreneur in planning to open a business banking account at all. Among the nearly 26 million small firms in the United States, about two-thirds do not have business bank accounts, according to a Javelin Strategy and Research report released last year.

The bulk of these firms tend to be "overlooked and underserved" by most banks, Javelin found.

Small companies usually "hide in the consumer banking platforms," according to the Pleasanton, Calif., consulting firm. That means they pay lower account maintenance fees now, but likely will not get specialized services they'll need as they grow, including corporate credit cards, payroll/invoice management, remote deposit capture and specialized commercial lending.

"Banks need to refine their strategies so that they are recognizing this market and helping small businesses," said Mary Monahan, a managing partner and research director at Javelin.

By successfully marketing to and serving this untapped banking segment, she said, financial companies can generate more revenue, while helping these firms better compete in their markets.

Pushing small businesses into more debit and credit card transactions is also a smart move, according to recent research by Aite Group LLC.

"Small businesses have long fallen into a middle ground between retail and commercial banking," said Judson Murchie, an analyst with the Boston consulting firm.

"While small businesses often mimic the personal banking habits of their owners, much of their payment behavior reflects their nature as a business, resulting in high check volumes," he said. The increasing conversion of small-business check use to other payment vehicles is one of several reasons small-business credit cards are primed for growth.

For example, if small-business credit card spending increased from its current 4% market share to 14%, Aite Group estimates that interchange revenues from small-business credit card use would increase more than 300%, to over $10 billion a year.

Of the nearly $5 trillion that small businesses spend as a segment annually, only about 4% of that amount is charged on a small-business credit card, according to Aite Group.

Capital One Financial Corp., a consumer credit card powerhouse, sees opportunity in the underbanked small-business marketplace. "I think there is a mass-market, small-business segment," said Bob Kottler, an executive vice president for Capital One's small-business unit. He defines a small business as one with fewer than five employees and annual revenue of $250,000.

To encourage these firms to open small-business accounts, in May the McLean, Va., company began allowing customers to combine their business checking account and credit card rewards with those earned on their personal Capital One accounts.

Capital One also has found it is important to offer streamlined online banking to the mass-market end of small businesses that resemble the company's consumer offerings, Kottler said. "We offer a very similar online banking experience both for their personal business and their small business," he said. "Then as they grow and need more sophisticated products, we'll migrate them up to a place where they can get that."

Kottler said the reason underbanked small-business owners may hide in the consumer banking platforms is their fear that they'll get lost in a big bank's business banking division. "It's fascinating to me the amount of marketing we need to do to convince our small-business customers that they're important to us," he said.

Other financial companies are pursuing other strategies to attract small-business customers.

Bank of America Corp. is using social networking to reach underbanked small businesses. The Charlotte company sponsors a Web site called "Small Business Online Community," which it launched in October 2007. It is a free forum where small-business owners can network and find services from a base of established users, regardless of whether they are bank customers.

"We felt like it was important that small-business owners feel like they have opportunities to collaborate with each other and don't feel like they're being sold stuff," said John Durrant, a senior vice president of small-business banking at B of A.

The site, which has more than 50,000 registered users, contacts posters "only if they request it," according to Durrant.

For more traditional banking products, B of A started offering small-business customers its Business Fundamentals package in late 2008, which Durrant said includes a standard business demand deposit account that's free if the owner also uses a debit card at least once a month. "Business Fundamentals was one way we decided to go after encouraging customers to move from a check-based payment system to online," Durrant said.

Other banks are also stepping up their efforts. The U.S. arm of Toronto-Dominion Bank has doubled its advertising targeting small-business owners in the last year, said Jay DesMarteau, the bank's small-business sales and distribution strategy manager. He would not give specific ad spending figures but did say 30,000 to 40,000 small firms were using the bank's free BusinessDirect online banking services and that it expects that number to double in the next 12 months.

TD also provides incentives to employees who route customers into business accounts and offers a dedicated relationship manager to every small-business customer.

"The need really has to be there," DesMarteau said. "The small business is going to need those services, and the only thing you can do is make them aware of that."

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