It's a fact. Credit unions are not just for personal accounts anymore. Today, savvy institutions are aggressively targeting the small business and micro-business market with a full range of products and the personal attention this underserved group has been lacking.
By definition, a small business generates $20-million or less in revenue per year. A micro-business is a subset of this category comprised of businesses that bring in less than $100,000 annually. Of the estimated 25-million small businesses in the United States, a whopping 75% of these are micro-businesses. Although these companies are rarely on the radar of large institutions, they represent a significant growth opportunity to credit unions. These business owners are already using PC or laptop for their financial activities. What they're looking for is efficiencies and financial tools that make their small business operate like a big one.
Organic Growth Strategy
Cash-management solutions have become a key component to a credit union's organic growth strategy in the small business sector. Online cash-management enables business members to manage their accounts, understand their cash position, make vendor payments, process payroll and take advantage of automatic account alerts and sweeps. The most effective cash-management tools are easy-to-use, presented in everyday language with intuitive navigation-enabling member businesses to manage their finances from a single online platform. Integrating this solution with the core system and Internet banking application gives the credit union straight-through processing, enabling it to manage the member and not the data.
Sweep processing enables business members to automate fund management. In essence, it allows them to move money among multiple accounts to more effectively control cash flow. For example, funds can be automatically transferred to the business checking account on a specific date each month-for ACH or payroll; or funds can be transferred on a specific date. This automated money movement enables small and micro-business to streamline payments and collections activities, without having to add additional resources or take the owner away from his or her core business focus.
Although micro- and small businesses come in all forms, some constants exist. The owners are probably stressed for time and, as entrepreneurs, managing finances is probably not their strongest suit. That's why it's important for credit unions to offer their business members the technology they need to easily monitor finances and analyze their accounts. The key is simplicity-providing a single big-picture view of balance reporting and book transfers. This tool has to be easy-to-read and understand, but supply enough detail to help these entrepreneurs make informed decisions about their company's cash management.
Protection services include positive pay and stop payment tools. Basically, this is a double-check that says, "here's what's going to be posted-did you write this?" to give the business member an extra defense against fraud.
If the business takes in a number of checks each day-like a dry cleaner or a small retail outlet-remote deposit capture can turn that small business owner into a new business member. On the simplest level, remote deposit capture enables business members to use an on-site electronic deposit system to create their check images and send these through to the institution for instant credit. Again, the credit union is making life easier for the business member - eliminating the need to go to the drive through or teller line nightly, and providing quicker access to collected funds.
The good news is micro- and small business typically expects to pay a fee for these types of services. Credit unions should consider putting together packages, or bundles, of various services at different fee rates. A credit union that wants to capture the micro- and small business market must not only offer the right mix of technology tools to these prospective members, but must have some specific technology in place themselves.
The most common mistake that credit unions make is treating business loans like personal loans. Not only do these loans require ongoing monitoring to ensure the stability of the business, they require systems that can readily handle unique or variable loan payment schedules, flexible lines of credit and master construction loans. A business loan is not just a bigger member loan. Your credit union's ability to effectively and efficiently evaluate business credit risks is a key determinant of success. So is the need for an organizational framework and management. It's a whole new type of account structure that typically requires system add-ons and enhancements. Before a credit union launches a business member growth initiative, it's important to talk with the system provider to ensure they're ready to handle member business loans from origination through documentation and servicing.
Technology Has To Be Integrated
Of course, all this technology has to be integrated to the core for the credit union to capitalize on its strengths to attract and retain the micro- and small-business member. When a credit union has a system that provides a full member view, they're better able to recognize, serve and up-sell their members.
Once the business member technology is in place, the marketing begins. The key is to understand the market, and capitalize on the characteristics that make credit unions unique. Use integrated Customer Relationship Management tools to leverage existing relationships into cross-selling opportunities. Target your prospects. Devise a roll-out strategy. Focus on the sweet spots-or specific business niches like law practices or medical professionals - to get started. And package your services in a clear, understandable way. Remember, the more tools you give the micro- and small-business owner, the more you treat them like the valued member they are, the more successful you will be.
Once you gain a new small business member, you'll likely gain a new personal member as well. Small businesses are likely to consolidate their personal and business accounts in the same place. Promote your self-service tools, in combination with personal service, and your credit union reap the rewards.
Today's underserved micro- and small business market is the ideal match for service-oriented, member-centric credit unions. The key is offering the right mix of technology, self-serve options and comprehensive yet easy-to-use business tools this growing market needs.
David McConney oversees daily operations for the Credit Union Core Systems business of Harland Financial Solutions. He can be reached at david.mcconney<at>harlandfs.com.