Small Business Banking Viewed as a Commodity by Most Small Business Owners

November 30, 2006; 03:23 AM

Small business owners have a reputation for shopping around for the best possible product and services, but a recent survey by SurePayroll indicates this isn't the case when small business owners choose their small business bank. The survey provides numerous useful insights for banks that are looking to target small business customers.

The key finding of the survey is that small business owners believe that all banks offer approximately the same products and services. In SurePayroll's recent survey of 200 small business owners, fewer that 10% of business owners indicate that they choose their small business bank by evaluating the bank's products and rates.

"The small business banking survey confirms what we've been telling banks for some time," notes SurePayroll President Michael Alter. "Small business banking has become a commodity. With only a few exceptions, every bank offers the same products and services. It's no surprise that small business owners are not spending much time evaluating a bank's services."

Online payroll service provider SurePayroll has assisted banks in differentiating their offerings through the introduction of a bank-branded payroll service. In a market that is trending toward commoditization, offering payroll can greatly enhance bank client retention and attract new business by offering a unique and useful service.

How Small Business Choose Banks

The survey results show that, in lieu of product differentiation, business owners go with familiarity. The primary method for choosing a bank for a small business account, used by 30% of the survey respondents, is to open a small business banking account at the same bank where the small business owner already has a personal banking account. Indeed, 65% of surveyed business owners indicated that they use the same bank for personal and business banking.

Bank location also appears to play an important role. 26% of survey respondents said they chose their small business bank because the bank was close to their business or home.

Surprisingly, not a single survey respondent indicated that they chose their bank because of one of the bank's marketing programs. Other reasons for choosing a bank included getting a referral from a friend (10%), having previously used the bank for business purposes (10%), and being a member of a group that had an affiliation with the bank (5%). The remaining respondents (9%) cited other reasons for choosing their bank, including preexisting relationships with employees at the bank and a desire to support local banks.

The survey results also suggest that online banking capabilities are very important to small business owners. 79% of surveyed business owners indicate that they use online banking services that are available from their bank. Separate research by SurePayroll has confirmed that banks that offer online banking and online payroll keep customers longer and that their customers use a higher number of bank services than their counterparts at banks that do offer online functionality.

Close Ties Exist Between Small Business Bankers and Small Business Owners

Most small business owners (54%) indicated that they have one point of contact at their bank with whom they speak about business banking. The remaining respondents (46%) do not have a single point of contact.

Of those who have a single point of contact, 80% say that their banker would recognize them and remember their name if they saw the small business owners outside of the bank.

It appears that most small businesses are happy with their small business banking choices. 84% of respondents indicated that they would refer their bank to a friend.

In another indicator of small business banking satisfaction, 83% of respondents described their banks as being "small business friendly" -- however, the remaining 17% did not don't think their bank truly understands the needs of small businesses owners.

Is it worthwhile for a bank to court small business owners? Absolutely. The survey finds that a third of small business owners encourage their employees to use the same bank as the business.

"The message is clear," notes Alter. "There is tremendous opportunity in courting small business owners. The key is to offer services that prospective customers want and to be innovative, taking action on introducing new offerings before your competitors do."

About SurePayroll:

Privately held SurePayroll is America's fifth largest full-service payroll provider and the nation's largest online full-service payroll provider. SurePayroll is passionate about small businesses and their payroll. They are dedicated to providing an extremely friendly and simple payroll experience -- at a price small business owners can afford.

In addition to providing payroll services directly to small business, SurePayroll also provides a private-label payroll service that allows SurePayroll's numerous partners to offer payroll processing to their small business clients. Business partners include ABN AMRO, Pitney Bowes, and MasterCard. SurePayroll will process nearly $3 billion in employee and contractor payroll payments in 2006. For more information, visit www.surepayroll.com.