With the ending of SBA Payment Protection Program (PPP) loans, banks’ small business loan portfolios declined significantly in the second half of 2021. However, in line with the economic recovery, the outlook for small businesses appears positive entering 2022 (pandemic permitting). With this in mind, we observed the following trends in small business marketing, thought leadership and product development during 4Q21 as both traditional and challenger banks jockeyed for position in the small business market.
Financial providers continued to market to small businesses in a variety of ways, such as:
Developing campaigns and messaging around small business events, such as Women’s Small Business Month (in October) and Small Business Saturday (in November).
Financial providers are pursuing a multi-faceted approach to small business thought leadership, including:
Coverage of a broad range of topics of interest to small business owners
Increase in content targeted at different business owner segments and industries
Multiple content formats, led by articles and blogs, but providers are also increasingly using other content types, such as newsletters, videos, infographics and podcast series. (Bank of the West launched the Means & Matters podcast focused on women business owners. Cadence Bank introduced Good Companies, its first podcast.)
Continued focus on portals to organize content. Regions extended its Next Step sub-brand with the launch of the Next Step for Business portal.
With a significant majority of small businesses embracing digital channels, banks are expanding digital functionality and using these channels for both service and sales.
KeyBank reported a 50% rise in digitally active small business clients post-pandemic.
In a November 2021 presentation, U.S. Bank reported that the digital channel’s share of small business sales rose 2.5 times over the previous year.
Huntington Bank reported that digital channels accounted for 16% of new business deposit accounts, up from 12% in 2Q21 (and 0% in 3Q20).
Traditional banks are facing competition from a diverse array of challengers that are launching new products, aggressive pricing and a focus on the digital experience.
American Express sought to take advantage of its leadership small business payments by launching Kabbage Funding and the Amex Business Checking app.
Intuit launched the Money by QuickBooks mobile app and QuickBooks Checking.
Leading issuers launched new small business cards to capture a share of the expected strong growth in small business card spending in 2022.
In 2022, we expect that most of these trends will continue as new entrants look to identify and exploit market gaps, and incumbents focus on protecting and growing their small business customer bases by refining their positioning, products, offers and customer experience.
As consumers turn to digital banking channels for everyday banking – and for an increasing range of more complex banking interactions – the battle between digital challengers looking to enter and grab a share of the market and traditional banks seeking to optimize customer retention and engagement has intensified. With this in mind, the following are five key trends that emerged in the digital banking space during the 3rd quarter:
Existing digital challengers are expanding their product portfolios and raising funding for further growth.
Established digital banks are continuing to report strong customer growth. They are looking to enhance existing customer relationships by introducing new products.
Digital banks who raised funding in 3Q21 included Revolut and Varo (raised $510 million, valuing the company at $2.5 billion).
New digital challengers are emerging. With relatively low barriers to entry, new digital banks continue to emerge, with many targeting specific market niches, such as the recent launch of Nerve, a challenger bank for musicians.
Traditional banks are investing to build strong digital engagement. Banks have responded to the challenge posed by digital challengers by directing increased resources to develop features and tools that enhance the digital experience. To show progress on this, many banks are now publishing metrics not only on (digital/mobile) usage, but also on growing digital engagement:
Bank of America reported Zelle P2P payment users rose 24% y/y to 15.1 million in 3Q21 and Zelle payment volume jumped by 54% to $60 billion.
U.S. Bank reported that digital transactions accounted for 80% of total transactions in 3Q21, up from 67% in 3Q19.
Huntington Bank reported that digitally-assisted mortgage applications accounted for 96% of total mortgage applications in 3Q21, up from just 9% in 3Q20.
Traditional banks are developing their own digital banks. While many traditional banks are competing with digital challengers by enhancing their digital banking functionality, some are going further by
Launching standalone digital banks: Cambridge Bank launched Ivy Bank, a digital-only division.
Adding products to the digital bank’s offering: Citizens Access, Citizens’ national digital bank, is planning to introduce mortgage lending and student refinance by the end of 2021, as well as checking, home equity, credit card and wealth in 2022.
Traditional banks remain committed to the digital-human channel model. Many banks have realized that the broad transition to digital channels for everyday banking transactions means that they can continue to serve a market with a less dense branch presence, so are cutting branches in existing markets. However, their continued reliance on branches is seen is the fact that many are opening branches in de novo markets (JPMorgan Chase is halfway through a plan to open 400 new branches by the end of 2022). Banks are also redesigning branches in existing markets to reposition them to take on new roles (e.g., advisory centers, brand beacons, community hubs, locations to showcase new innovations).
Banking customers’ growing preference for digital (online and mobile) channels – as well as the huge number of digital challengers looking to gain a share of the market (read our December 2020 blog on segmentation among new entrants) – has led established retail banks to ramp up their investment in digital channels.
Growing digital banking users continues to be a prerequisite in establishing strong customer engagement. The onset of the COVID-19 pandemic in early 2020 was the catalyst for many reluctant consumers to use digital (online and mobile) banking channels for the first time. Many of these have continued to use digital channels even through branch banking has returned.
The top three retail banks – Chase, Bank of America and Wells Fargo – all report steady growth in active digital users. Bank of America claimed that 70% of its Consumer Banking households now use its digital channels.
Many U.S. banks also publish metrics illustrating that customers are using digital channels to carry out an range of banking activities, such as:
Conducting banking transactions:
The digital channel accounted for 68% of Region Bank’s total customer transactions
Interactions using Bank of America’s Erica virtual financial assistant rose 153% y/y to 94.2 million
18% of UMB Bank’s consumer deposits were made using its mobile app
Making person-to-person (P2P) transfers:
Regions reported a 75% y/y rise in Zelle transactions
Acquiring new products and services:
Truist reported that 44% of new checking accounts were opened digitally
The digital channel accounted for 65% of U.S. Bank’s total loan sales