Small businesses that use a credit union for their financial services are typically more loyal—and exhibit higher levels of satisfaction—than those that use a bank, according to new Raddon Research Insights data.
While many small businesses that use a credit union as their primary financial institution (PFI) are likely to recommend their credit union to others, the number of small business credit union members remains small.
Communication of capabilities is one way credit unions can help boost future market share.
Raddon recently surveyed 1,200 small businesses and found that 91% of respondents who use a credit union as their PFI are likely to remain with the credit union. By comparison, 81% of small businesses using a bank as their PFI are likely to remain with their current provider.
Small businesses that use a credit union as their PFI are also more likely to recommend their credit union to family members or friends than small businesses that use a bank.
When presented with a 10-point scale to rank the likelihood of recommending their PFI, 60% of small business owners that use a credit union selected “9” or “10”—indicating they are a promoter of credit unions—and only 12% selected less than “7”—indicating they are a detractor.
This gives credit unions an overall “promoter” score of 49 among small business customers.
This is certainly good news for credit unions, as Raddon Research Insights shows major and regional banks with a promoter score of just 17 among small business customers.
These results are particularly encouraging for credit unions that are looking to grow their small business services, but they only tell part of the story.
In spite of higher loyalty and satisfaction scores, credit unions are underrepresented when it comes to small business market share, with only 6% of small businesses claiming a credit union as their PFI.
Banks dominate small business market
The majority of small business owners continue to gravitate toward major banks, with more than two-thirds (68%) using one of the top six largest banks as their PFI.
In terms of market concentration, Wells Fargo, Bank of America, and JPMorgan Chase collectively control 53% of these primary relationships.
Credit unions are much better represented with the general consumer population, with 19% of consumers claiming a credit union as their PFI.
So what is preventing credit unions from achieving a larger small business market share?
Mega-banks have dominated the small business market in spite of lower net promoter scores. But the scores suggest that an opening exists for credit unions to be part of the conversation.
Raddon Research Insights asked small business owners that are not currently using a credit union whether they would consider using one in the future. Overall, 38% of these small businesses were extremely or very likely to consider using a credit union in the future.
For the small businesses that are unlikely to use a credit union, simply being satisfied with their current financial institution topped the list of reasons why they would not consider switching.
Branch convenience also weighs heavily on the minds of these small business owners, with 31% citing the lack of branches as a reason why they wouldn’t use a credit union.
The product menu and pricing also play a significant role, as 22% indicated their current financial institution offers a better selection of business products, and 16% believe their current institution probably has lower fees.
The list of reasons why some small business owners would not consider a credit union also includes 16% that believe credit unions lack experience with business services, and 14% that are not even aware that credit unions offer business deposit and loan accounts.
Experience and awareness concerns are higher for credit unions than they are for community banks, which indicates a unique challenge for credit unions to overcome.
In other words, credit unions need to be more effective in getting the message out that they offer business services and also demonstrate their expertise in this area.
While only 9% of those unlikely to use a credit union cited concerns over online and mobile banking technology, it was more of a significant issue for millennial small business owners.
Underscoring the growing importance of technology for younger small business owners, 24% of small businesses led by a millennial said they would not conduct business with a credit union based on their poor perceptions of the credit union’s technology tools.
Communication is key
In summary, credit unions can succeed in winning a greater share of the small business market by demonstrating they understand small business challenges, they have the expertise that small business owners need, and they can deliver the technology and specialized products and services to help them grow.
Having a strong online and mobile presence can also help credit unions connect with small business owners—especially millennials—while conveying the breadth and depth of business services available to them.
Mobile apps geared toward small business owners offer a unique appeal and additional convenience for the faster pace of life today.
Word-of-mouth promotion should continue to be strong for credit unions, and incentivizing small business owners to recommend their credit unions is a great tool to generate growth.
By offering incentives such as cash bonuses to those who help recruit new small business members, credit unions can ensure long term appeal and progression in the small business market.
MARCUS ROTHAAR is a senior research analyst for Raddon Financial Group.