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Marketing Financial Services to Small Businesses - US - March 2012

Small businesses are a critical part of the U.S. economy, accounting for 50% or more of total employment in the U.S., according to the Small Business Administration. With these businesses having been hard hit by the challenging economic environment over the last several years, many are struggling to find ways to thrive or even simply to survive. These decision makers are looking for ways to manage cash flow, fund startups, or cover unexpected expenses, which is creating opportunities for financial institutions, card issuers and other lending sources.

This report examines key issues facing the financial industry as it relates to the small business market, including:

  • The small business market is large and diverse, as such they do not constitute a homogeneous segment; therefore, marketing to small business owners requires targeting a number of unique small business segments.
  • Over $400 billion is spent annually on financial services by small business. Mintel’s research shows that as a segment, small business owners look beyond just the lowest-cost providers, they are also looking for the high value alternative.
  • The recession had an impact on the landscape of small businesses from 2006 to 2008 and the number of small business employers shrank. Because of the challenging economic conditions in those years, some employers simply could not afford to cover payroll. At the same time, a good number of non-employer firms came into being when people found themselves unemployed and decided to go it alone.
  • While small businesses have widely adopted merchant services, they remain concerned about the added costs of using cards to accept payments. Small businesses are also heavy users of credit cards to pay their own bills, cover cash flow, and even to expand. Over 50% of small businesses use cards for day to day expenses—some by choice and some out of necessity.
  • All businesses have a fiduciary responsibility to ensure that consumer payment information is secure, and this is a priority for many small businesses. There are a number of emerging technologies which allow for quick funds transfer and safe transactions. These technologies will likely make convenient access to a bank branch much less critical over the longer term.

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Table of contents

  1. Scope and Themes

    • What you need to know
      • Scope of this report
        • Data sources
          • Consumer study data
            • Advertising creative
              • Abbreviations
                • Terms
                • Executive Summary

                  • Industry overview
                    • Small businesses need partners
                      • Technology is changing the selection criteria for financial services
                        • Marketing of financial services is about more than a checking account
                          • Ownership dictates some differences in small business
                          • Insights and Opportunities

                              • Key points
                                • Integrate your view of the small business customer
                                  • Help your customers, help your bank
                                    • Small business values second
                                    • Inspire Insights

                                      • Inspire Trend: “Subsidize My Dreams”
                                        • Inspire Trend: “Decline of Deference”
                                        • Market Size and Forecast

                                          • Key points
                                            • Size of the small business sector
                                              • Small business drives the U.S. economy
                                                • Figure 1: Employment size of employer and non-employer firms in U.S., 2008
                                                • Figure 2: Change in firms, by employee size in U.S., 2006-08
                                              • Small business banking requirements
                                                • Small business banking in the precarious U.S. economy
                                                  • Lending is a critical component in small business banking
                                                      • Figure 3: SBA approved small business loans, 2009, 2010 and 2011
                                                      • Figure 4: SBA 7(a) top 15 lenders, by volume, through FY 2010
                                                    • Small businesses need varied financing sources
                                                      • Figure 5: Small business financing used, 2008-2011
                                                  • Competitive Context

                                                    • Key points
                                                      • Analysis of marketing efforts to small businesses
                                                        • Figure 6: Small business banking online, direct mail and print acquisition campaigns, January 2010-December 2011 and January 2008-December 2009
                                                      • Mega banks, community banks and credit unions
                                                          • Figure 7: Number of bank branches as of June 30, 2002-11
                                                          • Figure 8: Small business loans as share of assets, 1994 and 2010
                                                          • Figure 9: Small business loans at credit unions, at community banks, and at large banks: Commercial & industrial loans and commercial real estate loans, billions of dollars, 2010
                                                        • Non-banks and small business
                                                          • High tech, high touch
                                                          • Marketing Channels

                                                            • Key points
                                                              • The channels of the future
                                                                • ‘Alternative channels’
                                                                  • Technology’s impact on financing
                                                                    • Relationships are the biggest win-win for financial institutions
                                                                      • Mobile banking is growing among small business users
                                                                          • Figure 10: Banking activities conducted on mobile phone in last year, mobile phone owners, by age, November 2011
                                                                      • Market Drivers

                                                                        • Key points
                                                                          • U.S. economy is still struggling
                                                                            • Unemployment in the U.S.
                                                                              • Figure 11: Unemployment rate, 2008-11
                                                                            • Cost of funds for banks
                                                                              • Figure 12: Average net interest margin, 2010-11
                                                                            • U.S. inflation rate
                                                                              • Figure 13: U.S. inflation rate, Consumer Price Index (CPI), 2010-11
                                                                            • GDP helps to gauge small business health
                                                                              • Figure 14: U.S. GDP, 2010-11
                                                                            • Charge-off and delinquency rates are on their way down
                                                                              • Figure 15: Charge-off rates of commercial R.E., C&I, and total loans at all banks Q1 & Q3, 2007-11
                                                                            • Legislation affecting small business
                                                                              • Dodd-Frank Act
                                                                                • Reg Q
                                                                                  • More on Dodd-Frank
                                                                                    • Small Business Jobs Act of 2010
                                                                                      • Legislation with a potential future impact
                                                                                      • Leading Companies

                                                                                        • Key points
                                                                                          • Small business satisfaction shows improvement
                                                                                              • Figure 16: U.S. Small business banking satisfaction, ratings and rank with differences, 2010-11
                                                                                              • Figure 17: Small business banking satisfaction ratings over time, 2007-11
                                                                                            • Chase
                                                                                              • Citibank
                                                                                                • Bank of America
                                                                                                  • Wells Fargo
                                                                                                    • M&I Bank/BMO Financial Group
                                                                                                      • U.S. Bank
                                                                                                        • Navy Federal Credit Union
                                                                                                        • Innovation and Innovators

                                                                                                          • Key points
                                                                                                            • FirstBank is number one in assisting its smallest small business customers
                                                                                                              • Citibank for iPad
                                                                                                                • U.S. Bank/Elavon
                                                                                                                  • Look Up With US – Facebook networking campaign
                                                                                                                    • Next Street Opportunity Fund
                                                                                                                      • Remote deposit capture
                                                                                                                        • Act local, be local
                                                                                                                        • Marketing Strategies

                                                                                                                          • Key points
                                                                                                                            • Print advertising
                                                                                                                              • Capital One Bank takes on local flavor to connect with customers
                                                                                                                                • Figure 18: Capital One print ad, September and October 2011
                                                                                                                              • FirstMerit Bank goes loud and local
                                                                                                                                • Figure 19: FirstMerit Bank print ad, December 2010
                                                                                                                              • Direct mail advertising
                                                                                                                                • TD Bank small business products
                                                                                                                                  • Figure 20: TD Bank print ad, 2011
                                                                                                                                • The Private Bank small firm mailing
                                                                                                                                  • Figure 21: The Private BANK direct mail ad, October 2011
                                                                                                                                • OnPoint Credit Union Business Interest Checking product mailing
                                                                                                                                  • Figure 22: OnPoint Community Credit Union direct mail ad, December 2011
                                                                                                                                • Customer Communication from M&I Bank
                                                                                                                                  • Figure 23: M&I Bank direct mail ad, January 2010
                                                                                                                                • Online and email advertising
                                                                                                                                  • Chase promotes RDC with a free check scanner
                                                                                                                                    • Figure 24: Chase Free Check Scanner, 2011/2012
                                                                                                                                  • Citywide Banks’ local relationships
                                                                                                                                    • Figure 25: The Citywide Banks online ad, May to June 2011
                                                                                                                                  • Television advertising
                                                                                                                                    • Figure 26: Capital One Bank, 2011
                                                                                                                                    • Figure 27: Lindell Bank, 2011
                                                                                                                                    • Figure 28: OnPoint Credit Union, 2011
                                                                                                                                    • Figure 29: 121 Credit Union, 2011
                                                                                                                                    • Figure 30: AmeriMerchant, 2011
                                                                                                                                • Who Are Small Business Owners?

                                                                                                                                  • Key points
                                                                                                                                    • Figure 31: Business owners, home-based vs. other locations, by gender and age, December 2011
                                                                                                                                    • Figure 32: Business owners, home-based vs. other locations, by number of employees, December 2011
                                                                                                                                    • Figure 33: Business owners, home-based vs. other locations, by annual revenues, December 2011
                                                                                                                                  • Sole proprieters most likely to operate in professional services
                                                                                                                                    • Figure 34: Type of business owned, by gender and age, December 2011
                                                                                                                                    • Figure 35: Type of business owned, by number of employees, December 2011
                                                                                                                                    • Figure 36: Type of business owned, by annual revenues, December 2011
                                                                                                                                • Small Business Owners and Banking

                                                                                                                                  • Key points
                                                                                                                                    • Under-use of business accounts among sole proprietorships
                                                                                                                                      • Figure 37: Incidence of business account ownership, by number of employees, December 2011
                                                                                                                                      • Figure 38: Incidence of business account ownership, by annual revenues, December 2011
                                                                                                                                    • Types of products owned by small businesses
                                                                                                                                      • Figure 39: Type of products at primary bank, by number of employees, December 2011
                                                                                                                                      • Figure 40: Type of products at primary bank, by number of employees, December 2011
                                                                                                                                      • Figure 41: Type of products at primary bank, by annual revenues, December 2011
                                                                                                                                  • How Small Business Owners Pay For Things

                                                                                                                                    • Key points
                                                                                                                                      • Four fifths use checking accounts
                                                                                                                                        • Figure 42: Payment method typically used for rent and utilities, by gender and age, December 2011
                                                                                                                                        • Figure 43: Payment method typically used for rent and utilities, by number of employees, December 2011
                                                                                                                                        • Figure 44: Payment method typically used for rent and utilities, by annual revenues, December 2011
                                                                                                                                        • Figure 45: Payment method used for day to day supplies, by gender and age, December 2011
                                                                                                                                        • Figure 46: Payment method used for day to day supplies, by number of employees, December 2011
                                                                                                                                        • Figure 47: Payment method used for day to day supplies, by annual revenues, December 2011
                                                                                                                                      • Many businesses still rely on personal credit cards for major purchases
                                                                                                                                        • Figure 48: Payment method used for major purchases, by gender and age, December 2011
                                                                                                                                        • Figure 49: Payment method used for major purchases, by number of employees, December 2011
                                                                                                                                        • Figure 50: Payment method used for major purchases, by annual revenues, December 2011
                                                                                                                                      • Credit cards dominant for online business purchases
                                                                                                                                        • Figure 51: Payment method used for online purchases, by gender and age, December 2011
                                                                                                                                        • Figure 52: Payment method used for online purchases, by number of employees, December 2011
                                                                                                                                        • Figure 53: Payment method used for online purchases, by annual revenues, December 2011
                                                                                                                                    • What Respondents Think About Their Businesses and The Economy

                                                                                                                                      • Key points
                                                                                                                                        • ‘Business as usual’ for the majority
                                                                                                                                          • Figure 54: Cash flow situation over last year, by gender and age, December 2011
                                                                                                                                          • Figure 55: Cash flow situation over last year, by number of employees, December 2011
                                                                                                                                          • Figure 56: Cash flow situation over last year, by annual revenues, December 2011
                                                                                                                                        • Businesses are seeking to reduce debt
                                                                                                                                          • Figure 57: Financial issues in the past year, by gender and age, December 2011
                                                                                                                                          • Figure 58: Financial issues in the past year, by number of employees, December 2011
                                                                                                                                          • Figure 59: Financial issues in the past year, by annual revenues, December 2011
                                                                                                                                      • How Growth and Cash Flow Needs Are Funded

                                                                                                                                        • Key points
                                                                                                                                          • Only a minority of businesses say they are reliant on credit
                                                                                                                                            • Figure 60: Methods for funding growth/cash flow needs, by gender and age, December 2011
                                                                                                                                            • Figure 61: Methods for funding growth/cash flow needs, by number of employees, December 2011
                                                                                                                                            • Figure 62: Methods for funding growth/cash flow needs, by annual revenues, December 2011
                                                                                                                                        • Female Small Business Owners – A Closer Look

                                                                                                                                          • Key points
                                                                                                                                            • Special considerations for women-owned small business
                                                                                                                                              • Figure 63: Funding of business growth, by gender, December 2011
                                                                                                                                              • Figure 64: Perception of business cash flow over past year, by gender, December 2011
                                                                                                                                              • Figure 65: Importance of aspects of business financial management, by gender, December 2011
                                                                                                                                            • Female respondents are optimistic about funding their small business
                                                                                                                                              • Figure 66: Importance of aspects of business finance, by gender and no. of employees, December 2011
                                                                                                                                          • Appendix: Trade Associations

                                                                                                                                            Companies Covered

                                                                                                                                            • Bank of America Corporation
                                                                                                                                            • BB&T Corporation
                                                                                                                                            • Capital One Financial Corporation
                                                                                                                                            • Citibank
                                                                                                                                            • Fifth Third Bancorp
                                                                                                                                            • HSBC USA Inc.
                                                                                                                                            • Regions Financial Corporation
                                                                                                                                            • Royal Bank of Scotland Group plc
                                                                                                                                            • SunTrust Banks Inc.
                                                                                                                                            • Wachovia Corporation
                                                                                                                                            • Wells Fargo & Company

                                                                                                                                            Marketing Financial Services to Small Businesses - US - March 2012

                                                                                                                                            £3,199.84 (Excl.Tax)