Despite the growth and revenue potential of small business online banking, many financial institutions continue to under-serve this vital market. New research from TowerGroup finds that while most banks offer a dedicated small business online banking product (95 percent of banks in the U.S., and 51 percent outside of the U.S.), half of these institutions provide these customers with a re-branded version of consumer online offerings – rather than creating more advanced features that meet the unique needs of small businesses.
TowerGroup estimates that by the close of 2007, over 50 percent of U.S. small businesses will leverage the online banking channel. Small business use of online banking grew dramatically from 1998 to 2007, and TowerGroup estimates a further 10 percent penetration by 2010.
Small business owners straddle the line between consumer banking and corporate cash management. They appreciate the simplicity of retail online banking, yet value the features such as multiple user access and electronic payments found in corporate online banking.
“Banks, credit unions and emerging non-bank competitors of all sizes are chasing the small business market in an effort to capture a share of this expanding segment,” said Patricia Hines, senior analyst in the Wholesale Banking practice at TowerGroup and author of the research. “The most savvy players are using small business online banking to provide multiple-user access, electronic payments, cash management services, and innovative features. But wide discrepancies remain. While several banks do offer a full feature set, many institutions are simply renaming consumer tools ‘small business banking.”
Highlights of the research include:
• In order to retain existing small business customers, banks offering minimal features must expand online capabilities. TowerGroup research found that less than 50 percent of banks include electronic payments in their small business online banking offering.
• At the upper end of the feature set, TowerGroup expects banks to increase integration with other high-value online services such as employee payroll, merchant services, and investment management.
• Small business owners are not immune to the security risks related to online banking. TowerGroup recently completed a global survey of online banking authentication practices in the small business channel. The survey found that due to increased fraud attacks and regulatory requirements, more than 85 percent of the banks surveyed have implemented multifactor login authentication for small business customers.
“Small business owners must have confidence in the security of their online banking platforms,” said Hines. “Although there are significant geographic differences in how online authentication is provided, our survey documented that financial institutions worldwide are committed to adding layers of security to protect their customers.”