It’s a phrase so common that it risks overuse: small businesses are the bedrock of the American economy. A recent McKinsey study showed that “Micro-, small, and medium-size enterprises…. employ nearly six in ten workers, produce almost 40 percent of value added nationally, and grow into a meaningful share of very large corporations.”
But the fate of SMBs isn’t merely relevant as an academic concern for analysts or a hot-button political topic – for banks, SMBs represent a key share of their relationships, and a central driver of revenue: small business banking represents about $150 billion in annual revenue for the US banking sector, or about 17% of the US banking industry as a whole [2]. And the banks themselves are not blind to the opportunity: a recent Cornerstone Advisors survey found that 74% of banks see small business deposits as a priority in 2025, a notable increase from the 64% of respondents from the previous year’s survey.
"Community financial institutions have the opportunity to generate substantial revenue from businesses," said Sonja Kostron, Director of Product Management for Business Banking at Narmi. "But it's important that they stay attuned to changing tides in market expectations if they want to stay ahead of megabanks and fintechs."
As seen in the data presented here, two converging trends that have shifted expectations in consumer banking have made their mark on the business side. Digitization of essentially all banking functions and interactions (on both the banking and customer sides) have put a premium on user experience and integration, which has allowed for deregionalization, where small businesses are able to shop for features outside what their local bank offers. The result is a marked difference in expectations of digital business experiences, which are now akin to the usability expectations set by consumer apps – especially among younger business owners.
Even with expectations for digital experience crossing an inflection point with business owners, how quickly this has translated into a “feature shopping” approach remains startling. McKinsey found that 41% of respondents said they were likely to switch primary banks within the next 12 months, with a further 32% considering switching.
The rate of switching itself is also on the rise. 13% of respondents said they switched their primary bank in the past two years, more than double the 5% that said they switched banks in the previous year’s survey. Notably, the top reason cited for changing banks was access to a better digital experience [2].
Other studies are even more confident that a once-reliable market segment is becoming restless. Cornerstone Advisors found that a whopping two-thirds of small businesses are looking for new banking relationships, with digital coming up again: “This will entail better cybersecurity protection, better business identity theft protection, and better (i.e., customized) cash flow management tools.” [3]
Instead of grounds for panic, banks should see churn as the beginnings of an opportunity. In a study of over 1,000 small businesses, Datos Insights found that although SMBs designated as more likely to churn turned to fintechs, 88% of those more likely to churn preferred to receive these services from their primary FI. The lesson is clear: banks that offer modern business banking functionality are already steeled against these headwinds, and have an opportunity to take market share away from those that do not.
Nowhere is the emphasis on business banking feature set and usability more acute than with younger business owners, such as the millennials who are forming businesses at a 58% higher rate than they were just before the pandemic [5]. Young business owners and decision-makers are digital natives, who carry a higher expectation of digital banking capabilities: 72% of Gen Z/millennial SMBs consider mobile payments important or very important vs. only 29% of baby boomers/seniors; 85% of younger business owners consider cash management tools important vs. 55% of baby boomers/seniors; and there is “much higher demand for embedded analytics and business insights among younger generations.” [6]
A Deloitte study found that even young businesses (<2 years) were much more likely than average to rank features as the most important factor when entering a new banking relationship, whereas "convenience or number of branch locations” were ranked by them as least important much more than average [7].
However, while these shifts are sure to necessitate modernization across the banking sector, timing is of the essence: 59% of millennial and Gen Z SMBs currently bank with one of the big four banks, as opposed to 48% of baby boomer and senior-run businesses, and “super-regional and regional banks are seeing the biggest squeeze in generational shifts, which risks becoming an existential issue.” [5]
In this new environment where allegiances lie with functionality, businesses will look for a consistent approach to product and design across their business banking experiences – especially as they become more integrated with the best-in-class software that already answers these demands, like Quicken and NetSuite.
“Every business user is a consumer – even more so on the small business side,” said Kostron. “Consumer experiences influence business expectations. Businesses want ease of use, just like consumers do. As a part of ease of use, they want self-service, and they want intuitiveness.”
Narmi’s product design philosophy is intentionally the same regardless of which product a business owner is using, and the resulting consistency of experience reduces cognitive load and crystallizes their impression of operating within one seamless ecosystem – our Narmi One platform.
An example of one such feature proven to align with business owners’ expectations, increase “stickiness” among users, and encourage bank primacy has been our Onboarding Guide. After initial account setup, users traditionally find themselves confused about what actions they need to take to fully utilize their accounts, especially on the business side where account completion is critical for business operations. This leads to a significant dropoff in usage.
With the goal of improving the integration between account opening and enrollment with the business banking experience, banks can surface a set of features that small business customers need to enroll in to fully set up their account, tailored around what features banks use to drive primacy in the initial stages of the relationship.
Through the psychology of gamification, we’ve seen that having business users deeply interact with their digital banking product from the get-go enhances their likelihood of finishing enrollment and staying with the bank. What we found most interesting was that in speaking to financial institutions while developing this product, the features they wanted in that initial push were less the complex revenue-generating functions, and more the foundational features that allow for ease of use – with an eye towards expanding the business once that relationship has been solidified. These include features as simple as:
“When it comes to digital, small business and consumer expectations are converging,” said Kostron. “The functionality SMBs need to do business is obviously important, but showing them how easy it can be is becoming a major selling point.”
