August 6, 2024 — More than one-third of small businesses and mid-size companies in the U.S. are open to switching banks for a better provider.
Historically, about 1 in 10 small and middle market businesses change banks every year. According to data from the latest Greenwich Market Pulse, that turnover rate has been elevated in the past 12 months, with about 15% of companies switching bank providers.
“The fact that 35% of companies say they would consider switching providers or adding a new bank to take over a portion of their businesses suggests that a sizable share of companies are considering their alternatives,” says Chris McDonnell, Head of Community, Commercial and Digital Banking Analytics at Coalition Greenwich. “We see this as a tremendous opportunity for banks to get in front of prospects and tell their story.”
The elevated rate of bank switching can be attributed to two key factors: a growing disconnect between bankers and their clients and a relative shortage of digital capabilities to simplify routine interactions. In the current environment, executives expect a seamless digital experience from all of their providers. However, many banks are falling short of expectations, leading to friction and, ultimately, attrition. According to data from Coalition Greenwich, 30% of small and mid-size businesses cite digital capabilities as a primary reason for switching providers, highlighting the urgent need for banks to prioritize investment in their digital platforms.
Despite the increasing importance of digital capabilities, a strong relationship manager remains an essential driver of success. One third of companies have moved their business due to their perception of weaker banker performance and many executives continue to express frustration with their bankers’ lack of specific industry knowledge as well as visiting frequency, responsiveness and strategic guidance.
“Many of the challenges for banks should be reasonably manageable,” says Chris McDonnell. “Some of the biggest complaints from commercial banking clients point to hustle factors that can be prioritized in hiring and training processes and further augmented with technology.”
A Tough Funding Environment: A New Option in Private Lenders
A growing number of small and mid-size businesses are also exploring new sources of financing as they look to secure financing in a challenging economic environment. Coalition Greenwich indicates that more than one-quarter of businesses are likely to seek new financing in the next six to 12 months, with many seeking out alternative lenders in search of more flexible and attractive loan terms. Approximately 20% of businesses that switched banks in the past year said they had been turned down for a loan by their previous provider.
“In a time of elevated interest rates, business owners and executives are taking every possible step to secure the funding they need to run and grow their businesses—including exploring non-traditional sources of financing,” says Chris McDonnell.