Internet Banking for Small-Business Customers.

• Author: Kessler, Ann
• Position: Brief Article - Statistical Data Included

Problem:

We are a community bank, and some of our small-business customers are being lured away by large, nonbank competitors. In response, we are considering the option of offering online banking to our small-business customers. Is this a viable option for a small bank?

Solution:

Any forecaster of the future of the Internet knows that business-to-business communications, transactions and payments are major trends. The question is whether banks or their nonbank competitors will be the key players. Certainly when it comes to small businesses, the community banks that have traditionally been their closest partners can keep these profitable relationships by offering online financial services.

A recent survey says that 75 percent of small businesses have access to the Internet. While they use that access for procurement or to find information, increasingly they will be performing financial functions. Studies vary, but most agreed that more than 50 percent of small businesses will be banking online in three years. This means there is a tremendous potential market for online financial services. Currently small businesses that use online banking are an attractive market segment. Financial Institutions Consulting found that these businesses had larger demand deposits, higher loan balances, more accounts and more satisfaction. ("Online Small-Biz Customers: Valuable, But Don't Force It," American Banker, January 12, 2001)

As of now, 15 percent of small businesses bank online. According to Financial Institutions Consulting, almost 70 percent check account balances and over 40 percent order wire transfers. Lending online lags behind the other banking functions. The study found that only 15 percent of small businesses had applied for credit online. Brightwood Partners found in their study that 4 percent of businesses shopped for a loan online, and only 2 percent applied for a loan online.

Levels of online needs

First Manhattan Consulting Group sees a progression in small businesses' use of online services. First small businesses access their account online, checking balances, transferring money, etc. Then they want online bill presentment and payment. Next they want to make online purchases, then access to advisory and referral services. Finally they want enhanced marketing help. ("Luring Businesses with Internet-Based Services is No Slam-Dunk," Small Business Banker, July 2000).

Most small businesses would logically need to use standard banking...