An undervalued segment: small business customers unhappy with their banks

An undervalued segment: small business customers unhappy with their banks


A key outcome of the global financial crisis of 2007–8 was that the big four banks in Australia— ANZ, CBA, NAB and Westpac—are now among the biggest and most profitable banks in the developed world. Among other reasons, this position has come about because collectively these four banks and their subsidiaries are major players in the Australian banking landscape and, unlike their counterparts in the USA and Europe, they had little if any exposure to the ‘toxic subprime market’ that precipitated the global financial crisis. Shareholders of the big four banks are happy indeed, as increased profits have resulted in higher dividends and rising share prices. However, while shareholders are happy, this happiness is not shared by the small business customers of the big four banks.

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The issues

There is a perception among small business owners that the big four banks are more focused on satisfying their personal customers than their business customers. The general view is that, unlike small business customers, personal customers can more easily change banks and, as such, there is a greater incentive for the big four banks to be more competitive in their offerings to personal customers. Small businesses are often the forgotten segment, squeezed between the personal customers and the giant corporations. A number of studies have indicated that small business customers in Australia are unhappy with their banking relationships. Research undertaken by Jobling and Nanere (2011, 2010) identified a number of common themes as to why small business owners were unhappy with their banks, including finance being harder to access, rising interest costs and fees, and banking relationships being less than satisfactory. In terms of the ideal banking relationship, respondents said that they desired a number of relationally based attributes from their business bankers, including continuity, accessibility and the ability to deal with a person who had an understanding of the nature of their business. These findings suggest that the big four banks are not delivering what their small business customers want. If the banks wish to attract and retain small business customers, clearly improvement is needed in what they offer these customers.

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The most fundamental means by which banks could better develop and manage relationships with small business customers is through increased investment in branches and front-line staff, with special emphasis being placed on employing additional business bankers. A number of banks in Australia, including Westpac and ANZ, have recently made significant investments in expanding their branch networks and increasing the number of business bankers that they employ. Moreover, these same banks are looking to employ more business bankers in the future. It is early days, but anecdotal evidence suggests that the investments made by these banks has led to an improvement in their image among the small business cohort and has resulted in them increasing their share of the small business market.

Banks could also set about implementing training programs that equip staff—and particularly business bankers—with the skills necessary to meet the needs of small business customers. Key among these needs is for business bankers to be able to proffer advice about which products and/or services would best meet the requirements of their small business customers. The provision of this advice necessitates that staff have an understanding of the nature of their customers’ businesses, which requires specialised training. These specialist bankers could then focus exclusively on servicing subsectors of the broader ‘small business’ market. Specialisation as a means of attracting and retaining small business customers has been successfully utilised by the NAB, which has specialist business bankers across a range of subsectors, including, agribusiness, business services, education and health. Although specialist bankers focus on particular industries, they offer their customers a holistic approach to their banking needs. A key benefit of submarket specialisation is that over and above keeping customers happy, it is a means by which banks can attract quality staff that see career opportunities in carving out a niche for themselves within the business banking market. The attraction of quality staff makes it much easier for banks to satisfy the needs of small business owners, thereby making it easier to attract and retain these customers. Another means by which banks could enhance their relationship with small business customers is to price their offerings on the basis of risk. Under risk profiling, the lower the risk profile of a customer, the lower the fees and/or loan rate that the customer is charged. For example, customers with a proven track record in terms of loan repayments would be treated more favourably than customers with a history of not making repayments on time. The benefit of risk profiling is that it enables banks to be flexible in their dealings with customers. The successful application of this pricing strategy is dependent upon a bank having a comprehensive profile of a customer, which, in turn, requires that the bank has been engaged in a sustained relationship with the customer. This seems to suggest that relationship management, in particular, should be a priority for banks wishing to expand their share of the small business market. Another option available to banks to reduce fees and loan rates is through the bundling of products and services. If a bank can successfully entice a customer to conduct all of their financial business through the bank—for example, banking, insurance, superannuation and wealth management—then there is enormous scope for the bank to offer significant discounts on what they charge the customer. Similar to the comments above, the key to this strategy is being relationally engaged with the customer. Banks that are relationally engaged are in a much better position to demonstrate to their customers the benefits on offer as a result of bundling. Banks that can demonstrate the advantages of bundling stand to benefit a great deal in terms of customer retention and, as a consequence, customer loyalty.


The above strategies could lead to the improvement in the image of the banks, as well as increasing the number of satisfied customers, which, in turn, is likely to lead to increased market share and growth, positive word of mouth, and greater loyalty. These factors, have the potential for banks to increase their profits further, leading to an increase in their share price.

1. How is personal or retail banking di­fferent from business or corporate banking?

2. ‘Small businesses are often the forgotten segment.’ Discuss.

3. How could banks provide more competitive o­fferings to both personal and business customers?

4. In your view, what are the most appropriate strategies the big four banks could adopt to improve the satisfaction of their small business customers?

5. What impact do you think these strategies could have on the bottom line of these banks?

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