The Financial Brand Insights - Summer 2022

COVID forced rapid adaptation through technology investments, which generated quicker, easier methods for financing when businesses needed it most. Small businesses are able to secure loans from fintechs, or willing to view fintechs as a viable lending option beyond their primary financial institution. This openness to alternatives is chipping away at the relationship between traditional financial institutions and small businesses. Nearly all small businesses surveyed have developed a working relationship with a tech partner. Those relationships have earned these tech companies enough confidence that small businesses with a preexisting relationship would be much more likely to trust suggestions from these partners than they would another bank or credit union that is not their primary financial institution. Without primacy, financial institutions lose not only on trust, but also loan consideration against small businesses’ new partners. (Figure 2)

half of small businesses obtained a loan; those in our survey mostly applied for business lines of credit (32%) or a business term loan (22%). Securing these loans was not as simple a process as small businesses needed it to be, causing frustration with lenders. (Figure 3)

Figure 4

Participant perceptions of business banking’s future Figure 5

Tech partners small businesses would consider as lenders

“The bank of the future will be a technology company” (vs a financial services company)

64%

PayPal

66%

Amazon

Figure 3

59%

Square

Small business perceptions of business lending and financing processes during COVID

No difference on Megabank customers vs. Local/Regional FI customers ( 86% vs. 83% )

38%

53%

44%

83%

Primary financial institution

No difference on Megabank customers vs. Local/Regional FI customers ( 45% vs. 49% )

Small businesses

Regional and Community Financial Institutions

Consumers

Another bank/credit union 46%

“Lenders have been poorly informed about programs and resources made available through state/federal lending opportunities” (Completely / mostly agree - 4 pt. scale)

49%

THE FINANCIAL BRAND © March 2022 SOURCE: Alkami Technology, Inc.

THE FINANCIAL BRAND © March 2022 SOURCE: Alkami Technology, Inc.

technology to continue their transformation. Small businesses are showing how integral tech has become for them by putting their money where it matters; more than half cite technology as a key investment priority. But financial institutions are not out of contention for seizing a broader relationship by financing these investment priorities. While tech players have gained significant ground in trust and loan consideration, the majority of small businesses believe the “bank” of the future will be a financial services company as opposed to a technology company. That said, fintechs are closing the gap by broadening the financial services they offer, requiring traditional financial institutions to respond in kind with their digital capabilities. (Figure 5) Takeaways for Strategizing As small businesses begin to thrive again, their emerging relationships with fintechs underscore the paradigm shift to which local and regional financial institutions must adapt. Small businesses are generally in better shape than expected, but they still need financial institutions. And while fintechs are disintermediating, financial institutions can still compete. Although larger small businesses benefitted from tech transformation, they

found credit was hard to come by with local or regional financial institution lenders. To fill the gaps their primary financial institutions leave in lending and technology, small businesses are open to alternatives, including fintechs. In fact, they’d prefer a tech partner over another traditional financial institution where there is no prior relationship. Financial institutions can find opportunities in lending as they always have while providing competitive digital experiences to make controlling finances easier for recovering small businesses. The key is to meet the needs of their business customers and members. ▪ About Alkami Alkami Technology, Inc. is a leading cloud-based digital banking solutions provider for financial institutions in the United States that enables clients to grow confidently, adapt quickly and build thriving digital communities. Alkami helps clients transform through retail and business banking, digital account opening and loan origination, multi-payment fraud prevention, and data analytics and engagement solutions. To learn more, visit www.alkami.com.

Those who got a loan in past 2 years: 62%

“Lenders have been slow to respond, making the lending process very time-consuming” (Completely / mostly agree - 4 pt. scale)

50%

Which tech partners’ suggestions small businesses would trust Figure 2

Those who got a loan in past 2 years: 62%

37%

PayPal

THE FINANCIAL BRAND © March 2022 SOURCE: Alkami Technology, Inc.

37%

Amazon

Despite these negative sentiments, only 19% of small businesses reported they considered or chose to switch financial institutions due to COVID. Almost half of small businesses went as far as saying they felt no impact on their relationship. And when it comes to loan consideration, the primary financial institution is the clear preference among small businesses, even when evaluated against emerging tech players with whom they have developed deep relationships through the pandemic. (Figure 4) Where Financial Institutions Can Compete Emerging from COVID, small businesses are doubling down, particularly by investing in

18%

Facebook

35%

Square

47%

Primary financial institution

Another bank or credit union 14%

THE FINANCIAL BRAND © March 2022 SOURCE: Alkami Technology, Inc.

…But the Primary Financial Institution/Small Business Relationship Still Holds Sway The impact on the relationships between small businesses and their primary financial institutions has only become clear as the U.S. economy recovers. Within the past two years, more than

19

20

THE FINANCIAL BRAND INSIGHTS SUMMER 2022

THE FINANCIAL BRAND INSIGHTS SUMMER 2022

Powered by