Now+NEXT 2018 FIS PACE FINDINGS WHAT S. for Small-to-midsize Business Banking in the United States. fisglobal.com/pace

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1 2018 FIS PACE FINDINGS Performance Against Customer Expectations (PACE) WHAT S Now+NEXT for Small-to-midsize Business Banking in the United States fisglobal.com/pace Small-to-midsize Business Banking in the United States 1

2 Introduction Now in its fourth year, the annual FIS Performance Against Customer Expectations (PACE) findings offer a clear view into how well banking providers are meeting the needs of their customers. For 2018, and for the second year in a row, FIS specifically surveyed smallto-midsize business (SMB) customers and asked them to rank the importance of nine key attributes and then score their primary banking provider s performance in those areas. These nine key attributes are built into FIS RUN-CONNECT-GROW model, which represents a bank s level of service and the steps to reach success. RUN CONNECT GROW The foundation of a successful relationship with consumers The ability to keep pace with connected consumers Consumers relationships that lead to top and bottom line growth Operate the bank reliably, safely, fairly and efficiently Trust Does what it promises and does what is right for my company Simplicity Offers the right products/services for my company that are easy to understand and simple to use Convenient locations Has convenient branch locations for me to take care of my company s banking needs Connect consumers with their finances Digital self-service Allows me to do things for my company anywhere, anytime through digital channels Human touch Provides my company the opportunity for personal, human interaction through branch, telephone, and/or live chat Immediate Responds fast enough to keep up with my company Grow the bank by investing in capabilities that enable consumers to grow Recognition Rewards my company for its business Digital payment Provides a digital app for me to make business, retail, bill and person-to-person payments with my smartphone, tablet or wearable device Control Helps me gain/keep control over my company s finances Small-to-midsize Business Banking in the United States 2

3 Summary Findings Overall, 8 out of 10 SMBs are satisfied with their banks, with favorability skewing toward community banks and those that assign relationship managers to SMB accounts. More SMBs accept online, person-to-person (P2P) and mobile app payments than a year ago, up 38 percent, collectively. Banks must meet this growing demand for digital payments. Payments processing is a weak spot for community banks, with one-quarter of their SMB customers working with thirdparty processors, more than three times the number of other bank customers. Far fewer SMBs are switching banks than a year ago, and those planning to are mostly big bank customers. Top complaints: fees, denial of loans/credit and inability to customize products. Even so, Digital Self-service is the top attribute for SMBs switching banks, suggesting they re leaving one top 50 global bank for another. Community banks are missing conquest opportunities. SMBs report great difficulty obtaining reliable and accurate information from their banks, especially big banks. Community bank customers have much less difficulty in accessing trusted information. Relationship managers are increasingly important to SMBs, but poor manager performance may play a role in why some SMBs switch banking providers. Small-to-midsize Business Banking in the United States 3

4 Priorities for Banking Providers 1. Digital Payments SMBs are adopting digital payments (online, P2P and mobile) at a breakneck pace but are not yet demanding such capabilities from their banking providers, instead relying on third-party processors. This presents banks, especially smaller ones, with a clear opportunity to lock-in customers and processing fee income by adding merchant services and digital payment functionality. 2. Open Banking The transition to open banking, when awareness remains low, presents an opportunity for banks to leverage SMBs favorable views of their security, engage trusted technology partners and add a host of business functions, such as accounts receivable or benefits administration. This is likely the most efficient, agile way to add the services SMBs want now and in the coming years. 3. Communication SMBs continue to report great difficulty in obtaining reliable and accurate information from their banks, especially big banks. The addition of dedicated relationship managers can only partially address the problem; banks large and small must focus on improving their communications overall, both internally to staff and on their externally facing websites. Small-to-midsize Business Banking in the United States 4

5 SMBs Want Simple, Responsive Banking Relationships Overall, small-to-midsize business (SMB) customers view Trust and Simplicity as the most important attributes in their banking relationships. Beyond that, their values differ based on whom they bank with. Digital Self-service is far more important to SMB customers of top 50 global banks, while community bank customers want their banks to be immediate in response to their needs. Most Important Attributes to SMB Customers, by Bank Type Rank Top 50 global banks Regional banks Community banks Overall 1 Simplicity Simplicity Trust Simplicity 2 Trust Trust Simplicity Trust 3 Digital Selfservice Control Control Control 4 Control Human Touch Immediate Digital Selfservice 5 Human Touch Digital Selfservice Convenient Locations Human Touch 6 Immediate Convenient Locations Human Touch Immediate 7 Digital Payment Immediate Digital Selfservice Convenient Locations 8 Convenient Locations Recognition Recognition Digital Payment 9 Recognition Digital Payment Digital Payment Recognition Small-to-midsize Business Banking in the United States 5

6 SMBs Very Satisfied with Community Banks Despite Weaknesses Overall, 81 percent of U.S. SMB banking customers are extremely satisfied or very satisfied with their primary banking providers. Notably, community banks see more than half (56 percent) of their SMB customers reporting they are very satisfied with their banks performance. SMB customers are least satisfied with regional banks. Satisfaction by Bank Type Total 42% 39% 81% Top 50 global banks 45% 38% 83% Regional banks 32% 42% 74% Community banks 28% 56% 84% Extremely satisfied Very satisfied Total satisfaction (combined) 8 in 10 SMBs are satisfied or very satisfied with their primary banking providers SMB customers report being satisfied overall by their banks performance in all nine RUN-CONNECT- GROW categories. Notably, community banks have lower satisfaction compared to other banking providers in Digital Self-service, Digital Payments, Convenient Locations and Recognition a trend apparent in several of the 2018 PACE key findings discussed in this report. Small-to-midsize Business Banking in the United States 6

7 The Digital Divide Online banking remains by far the primary way SMBs contact their banking providers, followed by traditional banking channels. Nearly twenty percent of SMB bank contacts are made through mobile devices. SMB Bank Interactions 44% Digital banking Traditional banking 13% 6% 10% 12% 8% 6% Online banking Smartphone banking Tablet banking Telephone banking (live rep or auto voice resp) Branch banking ATM banking Bank rep banking Small-to-midsize Business Banking in the United States 7

8 Money Moves Digitally However, when it comes to transactions, digital is clearly gaining ground. On average, 46 percent of SMB financial transactions were completed digitally and over half (57 percent) of SMBs report increasing usage of digital transactions. This trend skews naturally in favor of customers of top 50 global banks, which offer more digital capabilities. Digital Transactions Total Top 50 global banks Regional banks 57% 2% 40% 1% 61% 2% 36% 1% 47% 4% 49% Increased Decreased Stayed about the same Don t know Collectively, SMB acceptance of online payments, person-to-person (P2P) payments and mobile app payments is up 38 percent compared to a year ago. This highlights a clear, pressing need for banking providers to accommodate SMBs growing demand for digital payments. Digital Payments Accepted by SMBs, 2017 versus 2018 In general, just 8 percent of SMBs surveyed use outside services to help process their company s digital payments, but that number more than triples to 25 percent for community bank customers. This highlights what could be a significant loss in fee income and revenue for smaller, lesscapitalized banks. 47% 60% 31% 41% 24% 40% SMB acceptance of digital payments is up 38 percent from Using Service from Outside Organization to Help Process Payments Total Top 50 global banks 7% 8% 2017 Regional banks 6% 2018 Community banks 25% Online payments, either online transfer, ACH, auto-draft or on vendor's site Person-to-person, like PayPal Payment via mobile device/app Small-to-midsize Business Banking in the United States 8

9 Open Banking Jitters SMBs are using financial mobile apps more to conduct a wide range of business, from making investments to applying for loans and opening new bank accounts. This is likely to continue as open access banking makes its way into the mainstream. SMB Financial Mobile App Usage 61% 53% 51% 49% 45% 42% 33% 33% 31% Monitor account activity Initiate financial transactions Manage payment card controls Approve transactions Plan finances E-invoicing Invest unused capital Open new accounts Apply for a loan With open banking, banks make their data accessible to verified third parties via a set of secure application programming interfaces (APIs). In time, this will allow SMB customers to then add other financial services from other providers insurance, benefits administration, investments, etc. to their existing bank accounts. 35% of SMBs are aware of open banking, compared to just 4% of U.S. consumers. Small-to-midsize Business Banking in the United States 9

10 Worried About Risks Awareness of and enthusiasm for open banking is much higher with SMB customers than with general U.S. consumers, although customers of community banks are far less familiar with it (81 percent have no awareness of it). Even though SMBs trust their banking providers, 60 percent of SMBs surveyed believe the risks of open banking outweigh the potential benefits. View of Open Banking Total 60% 23% 17% Top 50 global banks 56% 31% 14% Regional banks 72% 16% 12% Community banks 66% 3% 31% Potential risks of open banking outweigh the potential benefits Potential benefits of open banking outweigh the potential risks Unsure/don t know The transition to open banking, when awareness is still low, presents an opportunity for banking providers to leverage SMB customers favorable views of their security and privacy protocols and clearly communicate their plans for open access initiatives. Most importantly, banking providers must work with trusted technology partners to add the ancillary products and services their SMB customers want, quickly and affordably, while maintaining the highest level of security. Small-to-midsize Business Banking in the United States 10

11 Big Bank Hopping Compared to last year, the 2018 PACE findings show that far fewer SMBs (1 percent) switched banking providers in the last year, despite their prior threats. A similar amount (15 percent) as in 2017 say they do plan to part ways with their primary banking provider in the next 12 months PACE 2018 PACE Switched banks Planning to Switched banks Planning to 14% 18% 1% 15% However, of those SMBs that have switched banks or plan to, most are customers of top 50 global banks. In fact, the data suggests that big banks could see as many as one in five SMB customers depart in the future. SMB Customer Defections, by Bank Type Top 50 global bank 20% Regional bank 11% Community bank 3% PACE data suggests that SMB customers are defecting from one big bank for another. Their top reasons for leaving: More competitive fees from another bank (35 percent) followed by being declined for a loan or line of credit and the inability to customize products or services (a tie at 33 percent). This is consistent with 2017 PACE findings. Missed Conquests One telling data point: For SMBs that switched banks or plan to switch in the next 12 months, Digital Self-service is the most important PACE attribute. This suggests that these SMB customers are most likely not leaving their top 50 global banks for a smaller regional or community bank, but instead just moving to another big bank that can fulfill their digital needs and offer slightly better fees. Considering the SMB customer base of the top global 50 banks, this represents a huge number of missed conquest opportunities, especially for community banks. Small-to-midsize Business Banking in the United States 11

12 Communication Is Key Overall, SMBs who bank with the top 50 global banks are more likely to have an unpleasant experience than those who bank with community banks. Getting time to physically visit a bank once again tops the list of difficulties SMBs experienced, same as in the 2017 PACE findings. SMB Banking Customer Pain Points (Selected) Getting all the information that my company needs from its bank quickly without visiting a branch or calling the bank 16% 24% 33% 37% 35% Finding people at my company's bank who can knowledgeably answer all of my questions 32% 39% 15% 44% Getting time to physically visit a bank branch 32% 50% 33% Total Top 50 global banks Regional banks Community banks For SMB customers of big banks, many of their pain points revolve around accessing information. However, when looking at SMB pain points overall, a clear trend emerges: It s harder for SMB customers of big banks to easily access reliable information and people. Community banks outperform handily in these areas. Small-to-midsize Business Banking in the United States 12

13 Throwing People at the Problem As a category, big banks have employed a clear strategy for easing SMBs pain points: relationship managers. On the surface, this looks like a smart strategy, because SMBs with dedicated relationship managers are happier. SMB Banking Satisfaction Have a relationship manager 48% 37% 85% Have no relationship manager 34% 41% 75% Extremely satisfied Very satisfied Overall satisfaction In addition, more than two-thirds of top 50 global bank SMB customers view a dedicated relationship manager as extremely important (31 percent) or very important (37 percent), much higher than SMBs that work with regional banks and other types of banks. However, banks need to be careful when pairing relationship managers with business banking customers. PACE data reveals that 88 percent of SMBs who switched or plan to switch banks already have a relationship manager. As the single point person representing a bank, even a small miscommunication by a relationship manager could threaten an SMB relationship. SMBs That Have Switched or Plan to Switch Banks 88% Have a relationship manager 10% Have no relationship manager 2% Don t know This reliance on managers highlights the underlying problem banks have with clearly communicating policies, fee structures and procedures. This is often an internal and external issue, if policy updates are poorly communicated to bank staff, they then miscommunicate them to customers. Small-to-midsize Business Banking in the United States 13

14 FINAL WORD Helping SMBs Grow Their Businesses SMB customers, even more than consumers, expect their preferences to be known and respected and for their banks to offer competitive fees as well as tailored communications and concierge services. Banks can create new revenue streams beyond expanding their business loan portfolios by offering ancillary merchant services, like payments processing, and by helping SMBs better serve customers and grow their businesses. Fortunately, it has never been easier or more affordable for banks to rapidly upgrade banking systems and capabilities, and open banking is likely to radically expand the products and services banks can offer SMB customers via a single user interface. Small-to-midsize Business Banking in the United States 14

15 About the FIS PACE Survey Since 2015, FIS annual Performance Against Customer Expectations (PACE) survey findings have provided a snapshot of how well U.S. banking providers are meeting the expectations of customers. For the 2018 report, we surveyed 321 U.S. small-to-midsize businesses across industries, from startups to established business and up to $500 million in revenue and asked them to rank the importance of nine key performance indicators (KPIs) for banking and then to rate their primary banking providers performance against those expectations. We also surveyed respondents about a range of emerging and established banking trends. Methodology The online survey was conducted by GfK Custom Research in January This is the fourth year FIS has conducted the market-defining PACE survey. The sampling was as follows: Consumer study SMB study Bank executive study Country U.S. U.K. Germany India U.S. U.K. U.S. U.K. No. of respondents Segments (with over-samples) 1,788 1,074 1,067 1, Community banks: 535 Credit unions: 619 About FIS FIS is a global leader in financial services technology, with a focus on retail and institutional banking, payments, asset and wealth management, risk and compliance, and outsourcing solutions. Through the depth and breadth of our solutions portfolio, global capabilities and domain expertise, FIS serves more than 20,000 clients in over 130 countries. Headquartered in Jacksonville, Florida, FIS employs more than 53,000 people worldwide and holds leadership positions in payment processing, financial software and banking solutions. Providing software, services and outsourcing of the technology that empowers the financial world, FIS is a Fortune 500 company and is a member of Standard & Poor s 500 Index. For more information about FIS, visit FIS FIS and the FIS logo are trademarks or registered trademarks of FIS or its subsidiaries in the U.S. and/or other countries. Other parties marks are the property of their respective owners. For More Information Banking providers and clients, please contact: Stephen Kane Senior Vice President FIS Marketing, Integrated Financial Solutions stephen.kane@fisglobal.com Press and media, please contact: Kim Snider Senior Vice President FIS Corporate Communications kim.snider@fisglobal.com Small-to-midsize Business Banking in the United States 15