SMBs’ Revenue Growth Linked to Their FIs’ Technological Capabilities

• Nearly half of SMBs receiving funding this year used FIs other than national banks to meet some funding needs.
• SMBs are eager to switch FIs for better technology, with those unfamiliar with modern technology the least inclined to switch.
• SMBs that have access to and use more complex technologies express higher satisfaction with the services their FI provides.

Small- to medium-sized businesses (SMBs) on Main Streets throughout the USA receive funding from a wide variety of sources. These include national, regional and local banks as well as credit unions. With such a wide selection, these businesses often seek credit outside their primary financial institution (FI) to find offerings that best meet their needs.

Moreover, SMBs prefer FIs that offer a wider variety and more complex technologies with sophisticated features and flexible payment solutions that streamline the lending process. In fact, those that use FIs that offer these technologies are the most satisfied with their FIs. Those that utilize these technologies more are also likelier to switch to FIs that offer more. This demonstrates their continued interest in new and innovative payment technologies to help grow their businesses.

These are just some of the findings detailed in “Main Street SMBs’ Expanding Technology Preferences: An Engine for Growth,” a PYMNTS Intelligence and i2c collaboration. This edition examines which types of lenders these businesses use to receive commercial credit, which FIs offer the most flexible payment options and which SMBs use the most technology. It also explores factors related to these businesses’ growth and satisfaction with their FIs. The report draws on insights from a survey of 578 SMBs conducted from May 8 to May 24.

• What’s at Stake
• Key Findings
• Conclusion
• Methodology

What’s at Stake

Securing outside funding is crucial for many Main Street SMBs to grow their businesses. Many seek out the commercial credit that best meets their financial needs. In fact, 71% of SMBs that borrowed money did so from national banks in the last year. When we include businesses that borrowed from multiple sources, we found that 47% looked beyond these larger FIs when seeking credit. More importantly, these businesses tend to favor FIs that make receiving the funds they need as easy as possible.

There is also a connection between technology and revenue. SMBs with access to a larger number of more complex options show increased revenue. Larger FIs often lead the way in payment innovation. For example, those using a national bank as their primary FI are 95% more likely to use technology than those using local banks. Smaller FIs could benefit from improving their technology offerings to ease SMBs’ access to funding and thus attract new customers.

Key Findings

Bigger FIs tend to offer more solutions and are likelier to offer more complex options with sophisticated features.

We asked SMBs if their primary FI provided 20 types of technologies and services. These include buy now, pay later (BNPL), spend controls and real-time payments. One-third of these businesses’ primary FIs provide product offerings that can be classified as premium (i.e., 18 or more payment technologies or services). Meanwhile, 32% of these businesses’ FIs provide a moderate product selection (11 to 17 technologies), and 34% provide limited offerings (10 or fewer). However, those that use a national bank as their primary FI are 55% more likely to report their FI provides a moderate or premium number of features than those that use a regional bank. This highlights how much more resources larger FIs appear to be investing in payment innovation than smaller ones.

We also looked at how an FI’s technology complexity correlates with an SMB’s choice of primary FI, time in business and, most importantly, revenue growth. Technology complexity can range from basic or standard capabilities to intermediate and advanced offerings. Basic features include mobile wallets, real-time payments and advanced fraud tools. Intermediate and advanced complexity offerings include more enhanced credit products such as virtual cards and BNPL. They also include such enhanced experiences as spend controls and integrated rewards and loyalty features.

SMBs that use national banks, at 56%, are among the most likely to say their FIs provide the most complex technology offerings with sophisticated features. Newer SMBs, at 59%, and those with increasing revenues, at 56%, are also highly likely to say the same. Whether their FI offers more technological solutions or more advanced features, these businesses appear to benefit from the availability and use of advanced technologies to grow their businesses.

Main Street SMBs with increasing revenues tend to use more technologies.

SMBs using national banks utilize more technologies than those using other FIs. In fact, at 33%, those that use national banks as their primary FIs are 95% more likely to be connected users of technology than those that use local banks, at just 17%. As their FIs may offer fewer options, those working with local banks, at 51%, are most apt to be basic users. This implies that when FIs provide these businesses with extensive technology options, they will use them.

Data also reveals a correlation between business growth and the use of their FIs’ available technology offerings. Businesses with growing revenues have used the most technologies provided by their FI. Thirty-eight percent of SMBs with increasing revenue use a premium amount of their FI’s technology offerings. Just 11% with decreasing revenue report the same. In fact, 49% of these businesses with decreasing revenues use a limited number of offerings from their FI. At 41%, newer businesses are also more likely to use a premium amount of product offerings. In contrast, those in business for 20 or more years, at 61%, are the most likely to use a limited amount of technologies from their FI. This suggests that these SMBs may be hesitant about adopting new technologies.

There is also a connection between business growth and complex technology adoption. Most SMBs with increasing revenues, for example, use more than just standard complexity features. In fact, at 26%, SMBs with increasing revenue are 122% more likely to use advanced complexity and sophisticated features than those with decreasing revenue, at 12%. Thirty percent of newer SMBs use advanced complexity features. In contrast, just 7.2% of those in business for more than 20 years do the same. This suggests that newer businesses may be better positioned for growth because they use more complex technology offerings.

Tech-savvy SMBs recognize the benefits of innovation on their businesses and value FIs that adopt new payment technologies. In fact, nearly two-thirds of these businesses report that new capabilities could encourage them to switch their primary FI. At 26%, the availability of payment solutions ranks as the top capability that would make them want to switch FIs.

Many SMBs are eager to switch FIs for better technology.

In contrast, SMBs that use a limited number of technologies are the least likely to switch FIs for new capabilities. These businesses are 90% more likely than others to claim they would not switch FIs. This suggests these businesses are resistant to new technologies, even those that can help them grow their businesses.

SMBs that use FIs with limited technology offerings and less complex technologies are the least likely to report interest in switching FIs. This implies something more than satisfaction creates SMBs’ loyalty to FIs that offer fewer and less complex technologies. In fact, 53% of SMBs using FIs with limited flexibility or basic offerings would not change their FI. Also, SMBs in business for more than 20 years are more likely than newer SMBs to use FIs offering basic features. These SMBs appear set in their ways despite the benefits of new technologies.

In contrast, SMBs using advanced complexity features are 3.5 times more likely to switch to an FI that offers additional payment technologies. SMBs that use complex credit features are the most likely to switch FIs, at 54%. In contrast, just 15% of basic users say they would switch. This implies that SMBs using complex features have come to value these technologies’ benefits.

SMBs that have access to and use more complex technologies express higher satisfaction with the services their FI provides.

SMBs that use FIs that offer more technologies and more advanced solutions express higher satisfaction with their FI’s credit offerings. Seventy-four percent of SMBs that use FIs with a premium number of product offerings are highly satisfied with their primary FI’s commercial credit offerings. Meanwhile, 70% of those that use FIs with advanced complexity offerings say the same. Those that use more technologies are also more satisfied. In fact, 81% of connected SMBs are highly satisfied with their primary FI’s commercial credit offerings. These findings suggest that satisfaction increases among SMBs with access to complex and flexible payment solutions that help them grow their businesses. This may decrease the risk of these businesses switching to another FI with better technology. SMBs happy with their primary FI’s technology offerings may be less likely to shop around — as their FI will already offer the best deal.

Conclusion

When Main Street SMBs receive funding to run, if not grow, their businesses, satisfaction with their commercial lender is key. For one, the availability of flexible and complex payment technologies and solutions can lead these businesses to switch to a new FI. This is especially true among connected SMBs that tend to use numerous and more complex payment solutions. Moreover, newer SMBs and those with increasing revenues favor FIs that provide more solutions and more complex technology offerings. This tendency suggests a link between technology adoption and new business opportunities. As a result, FIs that commit to innovation are in the best position to meet SMBs’ growing needs.

Methodology

“Main Street SMBs’ Expanding Technology Preferences: An Engine for Growth,” a PYMNTS Intelligence and i2c collaboration, examines which types of lenders SMBs use to receive commercial credit, which FIs offer the most flexible payment options and which SMBs use the most technology. It also explores factors related to SMBs’ growth and satisfaction with their FIs. It draws on insights from a survey of 578 SMBs conducted from May 8 to May 24. Our sample contained SMBs of varying sizes and industries: 27% of SMBs generate revenues of more than $1 million, and 36% generate revenues of less than $150,000. The sample included SMBs in retail (17%), construction (18%), hospitality (9%) and professional services (11%), among others.

Read the PYMNTS Intelligence June 2024 SMB Growth Monitor Report, “Innovators and Cost Cutters: Growth Strategies for SMBs,” for more.