Five ways for banks to better serve small-business clients

Small-business clients present a key opportunity for banks to strengthen their revenues at a time when rising interest rates and industry turbulence prompt depositors to move their money elsewhere.

The financial opportunity is significant. The United States is home to more than 30 million SMEs, representing 99 percent of the nation’s enterprises. Together, SMEs employ over 60 million workers, accounting for 47 percent of private-sector jobs. We estimate that small-business banking represents about $150 billion in annual revenue for the US banking industry across all products—deposits, loans, cards, cash management, and merchant services. That is about 17 percent of the US banking industry as a whole.

Micro businesses (those with less than $1 million in revenue) account for about $70 billion of the $150 billion revenue potential. Small businesses (with revenue from $1 million to less than $10 million) represent about $55 billion of the revenue potential and are a particularly valuable client segment for banks. The remainder comes from midsize businesses (with revenue of $10 million to $50 million).

SME banking continues to be a focal point for banks as a growth engine, evidenced by the more than 5 percent annual growth in revenue from credit card, deposits, and merchant services/payments over the past five years.

To better understand SMEs’ financial needs, we surveyed more than 1,200 US businesses with up to $50 million in annual revenue. Building on five previous editions of the survey conducted over roughly the past decade, we asked these businesses about core banking and lending, cash flow and treasury management, payments acceptance, and commercial enablement solutions such as payroll and accounting.

One of the key takeaways was that banks should consider becoming a one-stop shop for all kinds of products and services valued by small and medium-size enterprises (SMEs). These clients say they would welcome such convenience but generally aren’t getting it from their primary financial institutions.

As banks continue to focus on attracting new deposits and keeping existing ones, small businesses can serve as a cornerstone of liquidity strength and financial stability. Small businesses tend to have stickier deposits than larger clients: when trouble strikes, larger companies are more likely to pull their deposits, while smaller businesses often tend to keep their money parked where it is.

When it comes to SME clients who did recently pull money out of banks, they typically chose another bank rather than going outside the banking sector. The biggest banks were among the largest beneficiaries of interbank deposit transfers, according to our survey.

Banks that are leaders in the SME market have tailored their business banking products and services to these smaller clients, presenting a path for other financial services institutions to follow. Not all banks with SME clients have targeted offerings that meet smaller businesses’ needs and preferences, such as robust relationship management and seamless digital experiences, meaning they have room to improve and cultivate more fruitful relationships with this subset of clients.

Our survey uncovered five trends for banks to consider as they look to serve SME customers better:

  1. SME clients are more important than ever as an engine for deposit gathering as banks race to win and keep deposits amid tight competition.
  2. Banks working to attract deposits in the current money-in-motion environment can enhance their business offerings to differentiate themselves from other banks as well as nonbanks such as payments processors.
  3. SMEs want end-to-end cash flow solutions and would ideally like to get them from their primary bank.
  4. For payments processing, SMEs prefer providers that consolidate products in one place and offer lower costs.
  5. SMEs like the idea of their primary financial institution offering a broader set of commercial enablement tools such as payroll and accounting, but typically they are not getting it.

Let’s take a closer look at each of these trends and delve into how banks could apply these survey findings to develop their SME client strategies.

Know what SME clients want from a primary financial institution

Banks continue to capture the majority of primary banking relationships, which we define as relationships where the financial institution holds 40 percent or more of an SME client’s deposits. Smaller shares of SMEs have primary banking relationships with nonbanks or credit unions.

Respondents to our survey continue to indicate that robust relationship management and servicing is the most common reason for SMEs’ selection of a primary bank (Exhibit 1). Two other major reasons are the availability of online and mobile tools and integration with the client’s business software.


With the rise of digital tools, branch proximity has become less important as a reason for choosing a primary bank. However, it continues to be a top factor considered by micro businesses, those with annual revenue of less than $1 million (Exhibit 2). This market is highly fragmented, but banks can serve these clients efficiently if the customers make optimal use of digital banking and the existing branch network.


Capture money in motion

In this year’s survey, 41 percent of respondents said they were likely to switch primary banks within the next 12 months, and a further 32 percent said they were considering switching (Exhibit 3). Those who said they were likely to change their primary banking relationships over the next 12 months pointed to easier credit access as an important factor for doing so, against the backdrop of banks gradually pulling back on credit.


Most SMEs that consider changing banks don’t end up doing so, but switching is on the rise. In the 2023 survey, 13 percent of respondents said they switched their primary bank in the past two years, a share that is more than double the 5 percent of 2022 survey respondents who said they switched. The top reasons respondents cited in 2023 for changing banks were access to a better digital experience, client servicing support, and easier access to credit.

Banks have potential to attract and retain SME clients by investing in three areas. First, they can provide dedicated relationship manager support—the factor cited by 47 percent of survey respondents as among the top criteria for choosing their primary bank. This can be costly, meaning that banks choosing to invest in more relationship managers for SME clients likely need to consider cost-saving measures to compensate. Second, banks should ensure clients have easy access to relationship managers for both loan origination and servicing, an important point because SMEs say ineffective servicing relationships are a major reason for switching banks. Third, banks can invest in digital capabilities (such as online and mobile tools and integration with software-as-a-service solutions), given that 32 percent of respondents cited a better digital experience as a reason they were likely to switch banks.

Deliver end-to-end cash flow management

SMEs of all sizes make wide use of core payments and collections solutions, credit card services, and cash and treasury management workflow solutions. Roughly 70 to 85 percent say they get these services at their primary bank.

About 30 percent of SMEs say they don’t use their primary bank to meet their needs for some common add-on services (such as positive pay, which aims to deter check fraud, and zero-balance accounts, which are funded only when needed for a transaction) and complex services (such as electronic bill pay or smart safes that secure and monitor cash). These services therefore represent significant cross-selling potential. Banks could also deepen customer relationships by cross-selling personal credit cards and small-business credit cards to their SME clients.

SMEs say they choose cash flow management service providers based on the attractiveness of their fees or rates (51 percent), the comprehensiveness of the product coverage (47 percent), and the ease and accessibility of online tools (34 percent). About 70 percent of survey respondents said they are interested in end-to-end cash flow management services from their primary bank. Typically, the larger a small business grows, the more complex its financial needs become and the more it becomes interested in comprehensive solutions. To meet these needs, banks could offer bundled cash flow management tools and explore partnerships with specialized fintechs.

Integrate payments processing

SMEs can choose from a variety of payment-processing partners, including banks, fintechs, and traditional payment companies. The payment sector is evolving, with digital wallets becoming more popular and the threat of financial crime drawing increased regulatory attention

In our 2023 survey, 16 percent of respondents using point-of-sale channels said they changed payment providers in the past 12 months. A major factor in their selection of a payment partner was having the same provider for banking and payments, a predilection that represents a key opportunity for banks. SME clients say they would greatly value a compelling, centralized service that combines banking and payments while integrating with leading payment infrastructure such as next-generation point-of-sale terminals and payment methods.

Offer a broader suite of commercial enablement tools

Business software providers have proliferated in recent years to meet growing demand for bespoke solutions, but as we noted earlier, SMEs would prefer to get everything they need from a single source. Banks can consider deepening relationships with customers by offering commercial enablement solutions such as payroll, accounting, website hosting and design, and marketing and analytics.

Less than 50 percent of SMEs are getting their commercial enablement tools through their primary bank, but more than 50 percent said they would prefer to get these solutions from a single provider. Banks can explore offering a broader set of commercial enablement tools by developing bespoke solutions or by acquiring or striking partnerships with fintechs.

As client preferences evolve, banks may want to monitor SMEs’ appetite for business software and integration and invest in meeting customer needs—for instance, by offering a prebuilt API library for faster integration with digital tools.

As banks strive to solidify their positions in a changing macroeconomic environment, serving small and medium-size businesses represents a significant opportunity to increase deposits, bringing in additional revenues during a challenging time. Institutions that can do so successfully need to understand the market well and offer comprehensive solutions that are tailored to address the needs of specific SME client segments.

The authors wish to thank Aashita Goel, Pavan Masanam, Fiorella Pardo, and Nicholas Wunsch for their contributions to this article.

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