Is business banking at risk of getting swallowed up and neutralized as a stand-alone business unit? And would that be a bad thing? A disservice to clients?
The question is in the air, given the wave of consolidation in U.S. banking — and the fraught terrain arising from fintech competition and economic uncertainty as we move into year three of the pandemic. Existential angst about the future of the franchise, though, seems ironic, given the role played by business banking in the CEBA and PPP rescue efforts that helped keep businesses afloat; the heroics of 18-hour days spent processing applications are still fresh in many minds.
What’s old is new again.
That said, a periodic re-think of how business and small business banking should be structured does seem to go with the territory: re-segmentation and revamped coverage models have long been a fact of life for business bankers. Their area of the bank gets absorbed, spat out again, moved up, and moved down — often ending up where it started.
Given the special challenges of today’s environment, however, providers will need to weigh carefully the implications of any tinkering. The industry, which has been through two major crises in the last decade and a half (and is still navigating a rocky landscape), can’t afford to make any impulsive bets based on the latest consultant’s recommendation or the siren song of slashing costs.
The case for pride of place.
Put simply, how the business is structured and where it sits matters — a lot. Business banking, at times so idiosyncratic that it is misunderstood by other parts of the institution, is essential, not just for banks, but also for the well-being of communities and for overall economic growth. It needs to have the right home.
If it is going to remain its own line of business, though, will there be enough demand to make it viable? Executives I speak with answer that question with an enthusiastic yes: not only are small businesses forming in record numbers, they note, but other banking segments keep moving upmarket, leaving plenty of opportunity behind.
Providers that dissolve business banking into the big ocean of commercial banking have often ended up walking back the move. For one thing, it’s disruptive: commercial banking, by definition, tends to privilege larger clients, potentially leaving the smaller ones alienated and ignored. On the other hand, fully absorbing small business banking into retail can present its own set of problems: banks may find, for example, that over-stretched branch managers don’t have the expertise or capacity to serve clients well.
So, business banking is more likely to flourish when it has pride of place (ideally as its own line, though there are other models that can honor its strategic singularity). To a large extent, it’s about culture — and getting leaders in other parts of the bank to understand and value a segment that has been hard for some to fully appreciate.
The need to rethink the value proposition in light of recent events.
But the question of where business banking sits in the organization isn’t the whole story.
Equally important is the fact that leaders are reconsidering the business banking value proposition in light of all that has happened during the pandemic. That translates into giving small and medium-sized businesses the specific kind of support they need in today’s unstable environment; after all, their world has been upended, from staffing to supply chains, from prices to customer behavior. If there were ever a time when they need good bankers (plus the advice and solutions that good bankers can give), that time is now.
For providers, this means developing new offerings beyond just traditional services like credit or cash flow as they help businesses cope with 2020’s-style challenges. Check out the Gartner profiles of RBC’s Beyond Banking or UOB’s Two-Pronged Insight-Delivery Platform as illustrations of such approaches.
A new era seems to be dawning.
We’re still in the time of Covid, but there’s a sense that we’re transitioning to a future in which key things won’t go back to the way they were in 2019. Providers have been embedding many of the changes and lessons learned over the last two years: new values, new ways of getting things done, new ways of thinking… sort of a business version of what many of us are going through at a personal level.
Questions remain about which changes will stick… which older approaches are still valid… and where business banking should be anchored. You’d think that the achievements of PPP and CEBA might have made the case for business banking as its own domain. It turns out, though, that there is, as the proverb says, no rest for the weary: now it’s up to leaders to channel their passion and commitment into arguments on behalf of the franchise, even as they re-think its value proposition for the future.