As community banks continue to face stiff headwinds caused by increased competition from tradtional and non‐tradtional financial services providers as well as a harsher regulatory and economic environment, they must continually seek new revenue streams and competitive differentiation.

Small business banking is a valuable and often untapped source of opportunity for differentiation, growth and increased profitability. But, community banks face stiff competition for business banking accounts from major banks which control 68 percent of small business banking relationships.

A survey by Raddon showed 72 percent of small business respondents listing a wide range of business banking products and services as extremely or very important attributes of primary financial institution (PFI) status. Here’s the good news: your small business banking clients want to keep their personal and business banking relationships in one place, so offering comprehensive merchant services, including turnkey payments processing, is one way banks can ensure they keep the entire banking relationship.

Small Business Banking Market Share Opportunity

By a number of factors, the economic outlook for small businesses is good and optimism over the last couple of years has been at levels unseen in 45 years, according to the National Federation of Independent Businesses (NFIB), which has been recording optimism scores over 100 for the period between December 2016 and October 2018.

The potential impact of small business banking to the bank’s bottom line should not be ignored. In addition to simply attracting and retaining a higher number of small business accounts and balances, maintaining a PFI relationship with them opens the gate to attracting new loans. In 2018, U.S. small business loans totaled $700 billion.

To seize on the potential for capturing increased small business banking market share as well as the opportunity to capture larger business deposit and loan balances, community banks must understand and meet the unique needs and challenges of small businesses.

Merchant Services: A Key Driver of Competitive Differentiation

Even if you currently offer merchant services to small businesses, your processing provider matters a great deal—not all partners are created equal. While costs, wide payments acceptance, technology, compliance and safety may be some of the primary factors involved when selecting a processing partner, one often overlooked, yet critical feature includes support—both for your bank and your clients.

Community banks face extra challenges trying to keep pace with big bank competitors around the need for fewer staff to perform a wider range of functions. Partnering with a processor that offers end‐to‐end support, including marketing, training, side‐by‐side selling, merchant installations and live support can remove the barriers ften created when rolling out a new product offering—especially one that may not be within the bank’s core competency.

Geography also matters. Banks should select a merchant services partner with offices and representatives available locally who can provide in‐person training and onsite sales and support to both the bank and its business clients.

Maximum Impact

You’ll know you’ve found the right merchant services provider when you realize maximum retention and revenues with minimal effort. At a minimum, small business banking clients expect their PFI to enable payments acceptance. Community banks exceeding this expectation by offering world class payments processing, competitive pricing and the latest technology backed by personalized service stand to outpace their competition when it comes to account retention, average balances, revenue generation and overall profitability of their business banking portfolio.

According to Worldpay, card fraud is a $9.5 billion problem in the United States, and with the introduction of EMV technology and the resulting shift in liability from issuing financial institutions to merchants, much of that burden is being thrust upon your small business banking clients.

Just a few short years ago, the majority of card fraud was the liability of the financial institution. Today, that has changed. Merchants are now liable for 55 to 60 percent of all card fraud—and that figure is growing each year. Small businesses are quickly realizing they need to proactively fight fraud, but many are unsure of how, too busy to get mired in the details and/or unaware of available solutions to help.

Fortunately, as your small business banking clients’ trusted advisor, there is something you can do to help. Taking an active role in understanding available fraud‐fighting solutions and educating merchants about their availability will go a long way to helping you attract and retain more of this high‐value segment.

Not all merchant services solution providers are equal when it comes to the sophistication of their ability to proactively detect and prevent fraud. Traditionally, merchants have relied on complex—and cumbersome—rules to detect fraud and red‐flag transactions. There are two main problems with this method.

First, it’s reactive, not proactive. A merchant needs to experience fraud first before it can stop subsequent attacks via a rule. Second, it tends to be less customized to the consumer using the card. For example, if a merchant creates a fraud detection rule that a certain number of attempts to buy gas in a 24‐hour period triggers a decline, inevitably someone who drives long distances for a living may encounter an unusual—and highly annoying—number of false positives, souring the customer´s experience with the transaction.

Fraud Detection and Prevention for the Digital Age

With the introduction of machine learning, however, fraud detection and prevention has moved into the 21st century. Machine learning involves highly sophisticated, computer‐driven analyses of available transaction data to detect trends and then apply them across the board to like scenarios. Applying machine learning techniques has meant as much as a 99 percent reduction in the number of rules needed to detect and prevent fraud.

But, once again, not all providers are equal. Aside from the importance of the back‐end technology and sophisticated algorithms needed to thoroughly analyze data and apply findings accurately, the amount of transaction data available to analyze is extremely important to the accuracy of the analysis. Your merchant services partner matters.

Financial institutions should seek a partner that can offer merchants not only state‐of‐art machine learning capabilities, but access to a large database of transactional data to accurately identify anomalies on a grand scale and more important, possess the ability to apply findings to accurately and proactively prevent future attacks. With a large enough pool of merchant transaction data and machine learning capabilities, your processor will be able to apply learnings from fraud at one retailer, for example, to spot similar attempted attacks on another—before any losses are incurred.

The introduction of EMV‐enabled cards in the U.S. is still in its relative infancy, so financial institutions, merchants and consumers are still adjusting. According to Visa, 68 percent of merchants currently possess the ability to accept EMV‐enabled cards and as the remaining merchants continue to migrate, we should begin to see incidents of card‐present fraud decline. But, with EMV acceptance comes a continued shift in fraud liability from financial institutions to merchants. Preparing your small business banking clients now through education and value‐added fraud detection and prevention solutions is a win‐win for you and your merchant clients.