US...The Banking Tale 11 Top 50 global banks 12 Regional banks 13 Direct banks 14 Community banks...

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USSMB Insights

PACEFindings

2019

U.S. SMB Results

fisglobal.com/PACE

Table of Contents

Executive Summary 3

The SMB Snapshot 4

Bank Satisfaction and the Rate of Churn 7

Exercising the Trust Muscle 8

The Human Factor 9

User Experience 10

The Banking Tale 11

Top 50 global banks 12

Regional banks 13

Direct banks 14

Community banks and credit unions 15

Primaryfinancialinstitutions 16

Conclusion 17

About the Survey 17

U.S. SMB Results | 2


Executive Summary

There’s no question that SMBs are big business. They drive local economies, generate two-thirds of net new jobs1, and make up 98% of exporters and 97% of importers in the U.S2. They arealsotraditionallyunderservedbythefinancialinstitutionstheyrelyupon.

Sixty-one percent of bank executives surveyed by Fraedom believe that SMBs represent their greatest growth opportunities3. Their deposit accounts not only provide fuel for their banks’ lending activity, they also help underpin asset quality and CAMELS ratings. Given their numbers, even a 5% decrease in the number of small business checking accounts “is a big deal.”4

Understanding SMBs is key to capturing more of that marketspace

There are two stories within the PACE study: a tale of the banks who serve them and a snapshot of the SMBs themselves. In addition to the bank and market segment insights, the study highlighted the following themes:

• Bank satisfaction is down; SMB pain points are up. And so is the rate of churn.

• Trust is more than a brand promise. It’s muscle that needs to be exercised and developed.

• The “human factor” makes a difference. People matter.

• Technology also matters, but it’s time to stop talking digital and start emphasizing experience.

This FIS™ 2019 Performance Against Customer Expectations (PACE) Report is based on a survey of 586 small-to-midsize businesses (SMBs) in the UnitedStates.Thefindingsprovidebanks of all sizes with actionable and forward-looking information, insights and guidance.

The FIS 2019 PACE Report equips you with knowledge to help drive customer satisfaction, build customer trust, make personalized connections, employ technology effectively and achieve competitive advantage in the SMB marketplace.1U.S.SmallBusinessAdministrationOffice

of Advocacy2 Department of Commerce/International

Trade Administration3 Fraedom, Banks, Fintechs and SMES, A

Global Review of the Opportunity4 Mercator Advisory Group, Small Business

Banking: A Captive Audience (2018)


The SMB SnapshotAs SMBs grow, so do their borrowing requirements. The complexity of running their business increases, and the level of sophistication and feature/functionality they need increases, along with the challenge of control. SMBs rely on banks for a variety of services, ranging from credit and deposit services, to payments processing,digitalbankingandfinancialadvice, but ultimately, they want their banks to help them grow their business. As highlighted in previous studies, SMBs face critical junctures at about $2M in revenue, when they start to really adopt cash management solutions; at $15M-$20M, when they may no longer fallintothebank’sdefinitionof“smallbusiness;” and between $40M-$60M, when they are apt to examine their banking relationships in order to consolidate accounts.

75% of SMBs are very or extremely satisfied with their PFIs.

OverAs the industry has changed, so have the old rules of thumb regarding number of employees compared to revenue size: Companies rely on technology more than they rely on the labor force. Higher revenue does not necessarily mean a higher number of employees, and vice versa. Thirty-two percent of the companies less than $5M in the 2019 PACE survey had more than 100 employees, compared to 44% of companies between $5M-$25M. Almost two-thirds of the companies over $75M had more than 250 employees, andyetoverhalfofthefirmsbetween$25M-$75Mhadfewerthan100employees.Neithermeasurement – revenue nor number of employees – is an exact indicator of the level of sophisticationneededtorunanSMB’sfinances.

The2019PACEstudyrevealedthatSMBsarelesssatisfiedwiththeirprimaryfinancialinstitutions than they were a year ago. Companies with $25M-$75M in revenue reported thehighestlevelsofsatisfaction:Over85%ofthemareveryorextremelysatisfiedwiththeirPFIs.Smallbusinesseswithlessthan$5Minrevenueweretheleastsatisfiedwiththeirbanks.Only32%ofthemwereextremelysatisfied,5percentagepointslowerthantheaverage across all SMBs (37%). At the upper end of the market, customer satisfaction was 5 percentage points higher than average: 42% of SMBs over $75M weighed in as extremely satisfied.Thattrendcontinuesatthebottomendofthescale:Onaverage,22%ofSMBsareonlysomewhatorarenotsatisfiedwiththeirbanks,anincreaseof3percentagepointsoverlast year. 26% of SMBs who generate less than $5M in revenue are only somewhat or are not satisfied,alongwith27%ofmid-sizedbusinessesover$75M.


SMBs cited fees as the number one reason for stopping or switching a banking relationship, except for firms over $75M, who ranked fees second. While small businesses have a reputation for wanting everything for free, when separated out from larger companies, only 28% of companieslessthan$5Mindicatedthiswastheirreasonforchange,comparedto44%offirmsbetween $25M-$75M. Compared to their larger counterparts, small businesses tended to cite fewer reasons for change, as well as lower incidence of pain points.

Despite higher levels of general satisfaction, lower levels of dissatisfaction and smaller PACE satisfactiongapsthanlargerfirms,companiesbetween$25M-$75Mappeartobeatmostriskfor churn, followed by companies over $75M. In each of these categories, the PACE respondents reportedonaverage10%moredifficulties,makingthecasethatpainmaybemoreofadriverforchange than dissatisfaction.

$25M-$75M

$5M-$10M

appear to be at most risk for churn, followed by companies over $75M.

Most banks define a small business as having less than

Companies between

in revenue.

General Satisfaction (Extremely Satisfied)

General Dissatisfaction

(Somewhat/Not)

Churn Rate(Switched PFI, Started Using a

New FI, or Stopped Using an FI) PACE Gap

Average Incidence of Pain

< $5M 32% 25% 51% -12 45%

$5M-$25M 36% 20% 51% -34 34%

$25M-$75M 43% 15% 66% -17 51%

> $75M 42% 27% 53% -28 55%

TOTAL 37% 22% 55% -21 45%

Regardless of SMB size, there is widespread adoption of mobile technology. While the nature of each company’s business dictates what sort of payment mechanisms they need to support, in general smaller companies rely more heavily on legacy mechanisms such as cash, checks and money orders, whereas larger SMBs have greater adoption of electronic (cards, online and wires) and emerging (mobile and P2P) mechanisms. The one exception to this is small business’sacceptanceofP2P-likepayments,wherethey’reutilizedby36%offirmslessthan$5M, perhaps in part because of the retail/consumer-like nature of these products being a betterfitforsmaller,moreconsumer-likefirms.

$500,000 to $5M: Small Businesses – Past the point of startup, but still in the early stages. Dependingonassetsize,mostbanksdefineasmallbusinessashavinglessthan$5M-$10M in revenue. At some banks, the cut takes place at around $1M-$2M.

Competitive fees were both a driver for switching banks and for starting new bank relationships, although the cost-conscious small businesses in the PACE survey cited the inability to customize services almost as frequently as competitive fees as their reason for switching banks. They also listed good customer service as the second most frequent reason for choosing a new bank.

HalfthesmallbusinessPACErespondentsinthisgroupexperiencedsomedifficultyaccessingtheir banks’ online and mobile capabilities, making it their biggest pain point. The area which was leastchallengingforthemwasfindingthebestinvestmentsfortheircompany.

This group still relies heavily on cash and checks as forms of payment, followed by cards and online payments. Given the cost-conscious nature of this group, it might behoove banks who serve them to try to move them away from the more costly, paper-based payment mechanisms tomoreefficientelectronicforms.


77%of SMBs rated Trustworthiness as very important.

$5M-$25M: Growing/Mature Small Businesses – Either growing and passing through, or slowing down, depending on life cycle. These firms often fall in between banks’ definition of small business and commercial business. They place less weight on referrals in deciding to leave their PFI and more emphasis on the ability to customize services and/or products to their increasingly sophisticated needs. For them, credit is the least frequently listed reason for starting a new bank relationship, perhaps implying that their PFI can supply them with the levels they need.

This group reported on average the fewest number of pain points. Like small business respondents, they had the least amount of difficulty with investments, but 30% of them reported problems getting the information they needed without visiting or calling the bank, and 34% of them cited issues around the speed with which loan applications were processed, an indication of how especially precious time is to them.

PACE respondents in this category accepted cash and checks almost as frequently as smaller firms. In line with their growing sophistication, their adoption of wires and online payment mirrored that of larger companies.

$25M-$75M: Larger Small Businesses and Early Middle Market Businesses. Like the previouscategory,thesecompaniesmayfallsomewherebetweenabank’sdefinitionofsmallbusiness and commercial business, just at the point where they may be ready to undertake the exercise of reviewing their bank relationships in order to consolidate accounts or upgrade capabilities. Given their need for larger lines of credit, it makes sense that 39% of them would list being declined for a loan as their reason for switching out a banking relationship and that being accepted for a loan would be the second most frequently listed reason for choosing a new bank.

This group, more than any of the others, mentioned up-to-date banking processes/products as the third most frequent reason for going with a new bank. They also reported more pain points than any other group (followed closely by companies over $75M). Over 50% of the respondents had trouble in the following areas: getting time to visit a branch, faster bill payment to avoid later fee, accessing online/mobile functionalities and finding knowledgeable bankers.

The two top payment mechanisms used by PACE participants between $25M-$75M were cards and online; of all segments, this group had the lowest reliance on checks, cash and money orders. The nature of electronic payments makes having up-to-date processes and products especially important.

>$75M: Emerging Middle Market. Unlike their smaller counterparts, pricing is not the primary reason cited for switching out a relationship; it falls a close second to referrals. These SMBs had the highest overall expectations associated with the 2019 PACE attributes: Over 50% of them rated each of the 10 attributes as very important, and 77% of them rated Trustworthiness as very important.

This group is the first to call out poor customer service as their third highest reason for leaving, as well as the number one reason when choosing a new bank, along with the banks’ ability to resolve problems quickly and courteously. Over 50% of these larger SMBs experienced pain around all eight areas identified by FIS PACE study, the top two areas being time to visit a branch (58%) and locating trustworthy services (57%).

The SMBs in this group have the highest acceptance of online and mobile payments, and the lowest utilization of P2P payments. They also placed the highest level of importance on the PACE attribute of Innovation and recorded the largest PACE gap of all the market segments against it.


Bank Satisfaction and the Rate of Churn Bank satisfaction is down. SMB pain points are up, and so is the rate of churn. It’s not uncommon for SMBs to switch banks: Historically, 13%-15% of them are actively involved in reviewing their banking relationships. What stands out in this year’s PACE report is how much higher the rate of churn is, not only compared to last year, but when viewed over a longer period.

Forty-fivepercentofallSMBsreportedtherewasnochangetotheirbankingrelationship.This means over half the SMBs in the 2019 PACE survey switched their PFI, stopped using afinancialinstitutionoraddedanewone.Muchofthischurnrate(35%)wasdrivennotbyswitchingoutright,butbyaddingsecondaryaccountswithotherfinancialinstitutions.Theaverage SMB has 2.64 banking relationships – further evidence that spread of wallet may actually be the biggest threat.

There appears to be some correlation between the gap measurements in the PACE study and bank’s vulnerability levels. Those segments with a combination of more frequently experienced pain points and higher gap misses have larger numbers of customers who plan to switch their PFI, and direct banks, regionals and Top 50 banks are particularly exposed.

For each financial institution that loses an SMB relationship, another one wins.

Overall Satisfaction (Extremely Satisfied)

Churn Rate(Switched PFI,Started Using

a New FI,or StoppedUsing an FI) PACE Gap

Total Average

Pain Points Vulnerability

Top 50 Banks 36% 61% -32 50% 2

Regional Banks 38% 60% -9 46% 3

Direct Banks 47% 74% -45 53% 1

Community Banks and Credit Unions 38% 2% +24 15% 4

Total 37% 55% -19 45% -

Highlevelsofchurnarebadifthebankisonthelosingside.Foreachfinancialinstitutionthatloses an SMB relationship, another one wins. To get ahead in this market, banks need to manage the potential retention issues ahead of them, as well as on focus on how they can capture the hearts and wallets of those customers making changes.

So, what are some tactics for today and strategies for tomorrow that banks can use to do this?


Exercising the Trust Muscle Trust has long been touted as one of the financial industry’s brand promises and key advantages. As the PACE survey results point out, trust is more than a brand promise. It is one of the bank’s most important assets, and as such, it needs to be guarded, reinforced and promoted. It’s an objective that can be measured, monitored and improved. It’s a muscle that must be exercised and developed.

What does “trustworthy” mean to an SMB? Top attributes cited by the survey respondents include:

• Their transactions are safe and secure.

• Their company’s privacy is protected.

• Their company’s accounts are kept safe from fraud.

• Their best interests are represented.

• Their business as a customer is valued.

Delivering on these expectations requires a combination of policy, process and technology. Failing to provide good customer service or to resolve problems quickly and courteously, key reasons associated with switching, erodes customers’ trust in the bank. Referrals from other satisfiedcustomersbuildsitup.Failingtoaddresspainpointslikebeingabletofindpeoplewho can answer their questions or problems accessing functionality, common pain points, erodes it. Focusing on tactics today that address pain points and longer-term strategies to reduce the gap between customer expectations and their levels of satisfaction will better position banks as the trustworthy partners their SMB customers and prospects desire.

In addition to attracting new SMBs, trustworthiness can increase adoption and stave off competitionfromaggressivenewfintechcompetitors.Giventheleveloftrustandpreferenceforworkingwithafinancialinstitution,banksarewellpositionedtoexpandmarketshareinthefinancialapparena.Thismeansthatiftheyhavegaps,theyneedtofillthemnowandimplement longer-term programs to promote and support adoption.

Trustworthiness can increase adoption and stave off competition from aggressive new fintech competitors.


The Human FactorPeople matter. Companies, and particularly relationship-oriented financial institutions, like to think that their people make a difference. Throughout the PACE results, there is evidence that they do.

Customer Service

Good customer service was cited as the top reason for starting a new bank relationship.

What constitutes good customer service? Look at the reasons SMBs start new banking relationships: The ability to resolve problems quickly and courteously; delivering a smooth, easy customer experience; offering personalized service; providing the opportunity to interact or do things when (and how) the customer wants; and delivering modern, streamlined banking processes. While there can be a technology component to each of these, the human factor makes a memorable difference.

Good customer service also contributes to minimizing customer pain points: providing knowledgeable people to answer the SMBs questions, ensuring that loans are processed quickly enough for SMBs to take advantage of opportunities, providing assistance in accessing online functionality, offering guidance in investing andhelpingcustomersfindtrustworthyservicesbeyondfinancialservices.

41% of SMBs with an RM are extremely satisfied, compared to 26% of those who don’t have an RM.

People matter, but human effort alone won’t do it.

Relationship Managers

SMBswhohavearelationshipmanager(RM)aremoresatisfiedthanthosewhodon’t.Forty-onepercentofSMBswithanRMareextremelysatisfied,comparedto26%ofthosewhodon’thaveanRM.Only19%ofSMBswithanRMreportbeingsomewhatornotsatisfied,comparedto29%ofthose who don’t have an RM.

SMBswithanRMhaveahigherdegreeofconfidence/satisfactionintheirbank’strustworthiness(67% versus 51% of those who don’t have one). That level of satisfaction increases dramatically when the SMB also places a high value on having a relationship manager.

Having an RM also impacts and helps shape SMB views and opinions on emerging technology. Forty-fivepercentofSMBswithanRMbelievethebenefitsofopenbankingoutweightherisks,compared to 27% of companies who don’t have an RM, and only 5% of companies with an RM are unsure,comparedto13%ofthosewhodon’thavethebenefitofanRM.

Good, well-trained RMs reinforce each of the points associated with trustworthiness:

• They educate customer on how the bank’s products ensure that transactions are safe and secure.

• They inform clients about the steps the bank takes to protect the company’s privacy.

• They implement products to keep the company’s accounts from fraud.

• They communicate how the company’s best interests are represented.

• They help ensure that the SMBs time spent on administration is minimized.

• They repeatedly deliver the message that the customer’s business is valued.

They also help deliver against the PACE attributes:

• Provide a smooth, easy customer experience – Where there are gaps in technology to enable this,RMscanhelpfillinandensurethattheSMBsexpectationsregardingenrollment,implementation or customer service are met.

• Provide a personalized service that suits my need – One way to address this is by having technology that can be customized; having an RM who knows the company’s business allows the bank to put a human face on personalized service.

• Provide the opportunity for personal, human interaction – Regular, proactive interaction speaks for itself.

• Rewards me for my business – RMs not only communicate how the customer’s business is valued, but also bring products and deals together in order to maximize the return customers get from the relationship.


Offering the optimal user experience requires technology. But first, it requires having a strategy. And then it requires having people to implement it.

What’s important for banks to remember is that user experience goes beyond the user interface.

Banks must support new and emerging payments; they need to offer a broad set of financial apps, draw on the advantages they have over fintechs and be prepared with an open banking strategy to service tomorrow’s prospects. If banks can apply the lessons learnedfromfintechsregardinginnovation,speedtomarketandeasy,intuitiveproductdesign, their customers will get the best of both worlds.

What’s important for banks to remember is that user experience goes beyond the user interface. User experience is key to several pain points experienced by SMBs:

• Getting a loan quickly enough to take advantage of an opportunity – Can be solved in part by automated online lending applications.

• Getting all the information my company needs without visiting or calling the bank – Could be addressed via an online “library,” chat sessions or improved inquiry functions.

• Making bill payments fast enough to avoid late fees – Can be solved using an expedited bill payment or faster payment mechanisms.

• Accessing online/mobile banking functionality – Should be part of ongoing enhancement and upgrade process.

Offeringtheoptimaluserexperiencerequirestechnology.Butfirst,itrequireshavingastrategy. And then it requires having people to implement it.

User Experience People matter. So does technology, but it’s time to stop talking digital and start emphasizing experience. As the PACE report highlights, digital has clearly arrived. User expectations are being shaped by consumer experience, and the bar keeps getting higher.


The Banking TaleBased on number of accounts and relationships, big banks dominate the U.S. market. They offer geographic coverage, comprehensive product suites, and safety and soundness. At the opposite end of the spectrum, community banks and credit unions possess intimate knowledge of their marketplaces and customers; they are in many regards small businesses’ counterpartinthearenaoffinancialinstitutions.Fast-growingdirectbanksarenewcomersinthemarket,potentiallymorelikefintechsthantheirtraditionalbankingcounterparts.Betweenbigbanksandlocalplayers,regionalbanksseektoprofitfromtheirmarketplacefocusandability to wield more resources than a community bank, but far fewer than a Top 50 bank.


Top 50 Banks

90% of top 50 bank SMBs outsource payments:

Top 50 global bank investments in technology were reflected in both their PACE scores, where Top 50 banks outperformed SMB expectations for Frictionless delivery, as well as in their SMB customers’ higher levels of emerging payments and lower utilization of more traditional payment types. Top 50 bank SMBs’ levels of satisfaction were lower than the previous year, and while Top 50 bank SMB customers who switched listed competitive fees and inconsistent pricing as their primary reasons for switching their primary financialinstitution(PFI),Top50banksalso got credit for offering free products and services in competing against fintechs.LikeSMBcustomersofotherbank segments, Top 50 bank clients listed getting to a branch, getting a loan quickly enough and accessing online/mobile as pain points. It may come as no surprise, given these banks’ size and the number of customers they manage, that the Top 50 banks’ biggest PACE satisfaction gaps centered around Personalization and Trustworthiness, but in light of the massive investments they make in technology, it is noteworthy that they have a negative gap in Innovation.

77% use their PFI, 22% an OFI and 14% a fintech.

2019 PACE Study Findings Calls to Action

SWITCHING (Retention)

• Fees and inconsistent pricing are reasons cited by SMBs who switched Top 50 PFI relationships.

• Credit and outdated processes are top reasons SMBs switched their Top 50 OFI (Other Financial Institution).

• Emphasize transparent clear pricing and credit processes.

• Invest in updating products and processes.

WINNING (New Business)

• Competitive fees are second to good customer service in new bank relationship decisions by Top 50 SMBs.

• Place emphasis on clear and transparent pricing.

PACE Satisfaction Gaps

• Top 50 banks’ biggest negative gaps were Trustworthy and Personalized, followed by Innovation.

• Top 50 banks had only one positive gap: Frictionless

• Total PACE gap “miss” was -32.

Competing with Fintechs

• Top 50 banks were rated much higherthanfintechsonmakingiteasy to get business loans, treating SMBs equally and offering free products and services.

• Top 50 banks have only an 18% advantageoverfintechsinprovidingcost-effective business solutions and innovation.

• Keep loan application processes updated and continue bundling and account management strategies that are working today.

• Consider training/messaging around bank’s investments in product and technology, as well as value propositions (assuming that bank is well-positioned in both; if not, reassess pricing and partner/buytofillgaps).

Payments Processing

• NinetypercentofTop50bankSMBsoutsource payments: 77% use their PFI,22%anOFIand14%afintech(thesmallestfintechutilizationacross bank groups).

Digital Transactions

• Top 50 bank SMBs tend to have lower/average use of legacy payment types and higher levels of emerging payments.

Future of Banking: Most Desired Enhancements

• 1 – Tech to lower fees (50%)

• 2 – Integration/single hub (49%)

• 3 – Security tech (46%)

• 4 – Voice Banking (AI)

• Explore open banking/investments into APIs to satisfy clients’ appetite for integration to third-party services, along with easier to use security features.

Minimizing Pain

• Topdifficultiesincludedgettingtimeto visit a branch, accessing online/mobile, and getting a loan quickly enough.

• Train/sensitize RMs to promote services that can be used to reduce branch visits.

• Continue to enhance and update digital capabilities, including loan application processes, to improve customer experience.


RegionalBanks

91% of regional bank SMBs outsource payments:

Regional banks are seen as a safe alternative for companies seeking the security of banking with a large financial institution and perhaps needing a larger lending limit while wanting more of a regional or local presence. Their positive PACE scores for Safety and Rewards reflectthis,andtheirpositivescoresinthe PACE attributes of Innovation and Self-service are a tribute to dollars well spent in technology by these banks. Like the Top 50 banks, their scores for Trustworthiness fell short of the level of importance placed on this category by SMBs, along with the level of Control their SMBs felt the banks gave them over theirfinances.

The pain points listed most frequently by regional bank clients were around issues of speed: making bill payments fast enough to avoid fees and getting credit quickly enough to take advantage of an opportunity. These issues, as well as a key reason cited by regional bank SMBs for switching – inability to customize products – may tie back to their customers’ need for improved control.




• Inability to customize products is No.1reasoncitedbyregionalbankSMBs for switching PFIs.

• Competitive fees and referrals were top reasons for changing an OFI relationship.

• Examine how products and user experience could be better tailored, personalized and more easily customized.


• Being approved for credit is second to good customer service in new bank relationship decisions by regional bank SMBs.

• Assess market position, including pricing and customer engagement.


• Regional banks’ biggest negative PACE gaps were Trustworthy and Control.

• Positive gaps included Safety, Innovation, Rewards, and Self-service.

• Total PACE gap “miss” was -9.

• Emphasize clear and transparent credit processes.


• Regional banks are ahead of fintechs when it comes to treating SMBs equally, loan applications and helping SMBs improve customer satisfaction.

• They are rated only 8% ahead offintechsinprovidingfastestbusiness solutions.

• Keep loan applications processes updated and continue bundling and account management strategies that are working today.

• Examine implementation processes, as well as benchmark solution performance and release timelines to look for areas of improvement.

Payments Processing

• Ninety-onepercentofregionalbank SMBs outsource payments: 68% use their PFI, 27% an OFI and 17% a fintech.


• Regional bank SMBs tend to have lower/average use of legacy payment types and average levels of emerging and electronic payments.




• 3 – Security tech (43%)


• Explore open banking/investments into APIs to satisfy clients’ appetite for integration to third-party services, along with easier to use security features.

Minimizing Pain

• Top pain points centered around speed: slow bill payments, slow loan approvals.

• Promote time-saving and faster payment applications.

• Assess opportunities to automate/reduce time involved in credit process.

• Train/sensitize RMs to promote services that can reduce branch visits.


DirectBanks

94% of their SMBs outsource payments (highest of all bank groups):

Direct banks’ SMB customers had the highest levels of adoption of outsourced payments, as well as emerging payments, consistent with the notion that these institutions attract more technically inclined firms. Direct banks had negative satisfaction gaps against importance for eight of the 10 PACE attributes, and paradoxically, scored the largest negative 2019 gap in the category of Human Interaction. Their larger gap scores are accompanied by the highest reported plans to switch (45%), despite having the highest reported levels of customer satisfaction, making them potentially the most vulnerable of the banking segments.




• Competitive fees, failure to resolve problems, and outdated processes and products are the top three reasons cited by direct bank SMBs for switching.

• Assess market position to determine if there’s an issue with pricing, packaging or messaging.

• Collect customer input on problem resolution and business processes to identify areas for improvement and/or enhancement.


• Being approved for credit is second to good customer service in direct new bank relationship decisions by direct bank SMBs.

• Emphasize clear and transparent credit processes.


• Direct banks’ biggest negative PACE gaps were Human Interaction, Rewards, Trustworthy and Frictionless.

• Positive PACE satisfaction gaps included Innovation and Self-service.


• Directbanksoutperformfintechsinproviding fastest business solutions and easy to apply for business loans.

• Direct banks are behind or marginally close in providing cost-effective business solutions, innovation, and offering free products and services.

• Direct banks’ total GAP “miss” was -45, the highest across all bank categories.

• Keep lending processes updated and continue focus on speed and ease.

• Examine positioning and messaging around pricing/value propositions; consider bundling/packaging strategies.

• Considerpartneringtofillgaps/bringnew functionality to market faster.

Payments Processing

• Ninety-fourpercentoftheirSMBsoutsource payments (highest of all bank groups): 81% use their PFI, 23% anOFI,and21%afintech.


• Direct bank SMBs tend to have lower use of legacy payment types and higher levels of emerging payments.




• 3 – Security tech


• Explore open banking/investments into APIs to satisfy clients’ appetite for integration to third-party services.

Minimizing Pain

• Top pain points included locating trustworthy services, accessing mobile and getting time to visit the branch.

• Promote time-saving services that can reduce branch visits and provide online referrals.

• Benchmark mobile capabilities against best-in-class competitors and prioritize investments accordingly.


Community Banks & Credit Unions

Community bank and credit union SMBs in the 2019 study reported the greatest levels of satisfaction and listed the fewest number of reasons to switch banks. Community bank and credit unions had the greatest number of positive gaps against PACE and weresignificantlyaheadoffintechsin understanding SMB challenges, making it easy to get a loan, providing cost-effective solutions and offering products customized for SMBs. On the surface, things look like smooth sailing forthesefinancialinstitutions.Lookingdeeper, several things stand out as red flags:WhiletheiroverallPACEscoreswere positive, they scored some of the biggest PACE satisfaction gaps: -13 in the key area of Trustworthiness, -8 in theNo.3rankedattributeofControl,-11 in the category of Safety (ranked No.4)and-14intheincreasinglyimportant area of providing Frictionless banking. Community banks and credit unionswererankedsignificantlybehindfintechsintheareasofinnovation(despite their positive PACE score in this area) and only marginally ahead of fintechwhenitcametoofferingeasyto use products and providing fastest business solutions, an echo of the importance SMB place on a smooth/easy Frictionless customer experience.

Community bank and credit union SMBs reported the lowest levels of payments outsourcing: Only 32% of them use their primary financial institution, compared to 24% of them who used a fintech alternative for payments. Along this same vein, credit union and community bank customers’ use of legacy payment types (cash, check and money orders) outstripped their larger and direct bank counterparts’ usage, and their adoption of emerging payments (digital and P2P) was lower.



• Competitive fees and poor customer service were top reasons SMBs switch their community bank or credit union PFI relationship.

• Explore whether issue with fees is related to pricing, packaging or messaging.

• Dig into what constitutes good customer service for today’s prospects and tomorrow’s customers.


• Having products and services is second to good customer service in new bank relationship decisions by community bank and credit union SMBs.

• Offer the products and services SMB prospects need and expect.


• Community banks and credit unions had some of the biggest negative PACE satisfaction gaps: Trustworthy, Control, Safety, and Frictionless.

• These were offset by some of the greatest positive gaps: Personalized, Innovation, Human Interaction, Convenience, and Self-service.

• This was the only segment to exceed total expectations: +24.


• Community banks and credit unions wereratedsignificantlyaheadoffintechsinunderstandingSMBchallenges, helping SMBs improve customer satisfaction, making it easy to get a loan and offering products customized for SMBs.

• SMB clients rated them way behind on Innovation and only marginally ahead when it came to offering easy-to-use products and providing fastest business solutions.

• Continue focus and investments in SMB products and processes.

• Assess market position and prioritize any gaps; partner to bring new/improved solutions to market more quickly.

Digital Transaction Processing

• Community banks’ and credit unions’ rate of increase in digital transactions wassignificantlylessthanothergroups,and their rate of declines was higher.

• Assuming capabilities are in place, put programs in place to promote digital transaction processing. If not, get them!

Payments Processing

• Sixty-four percent of their SMBs outsource payments (lowest of all groups): 32% of them use their PFI, 22% anOFIand24%afintechprovider.


• Community bank and credit union SMBs tend to have much higher use of legacy payment types and traditional electronic payments, as well as lower levels of emerging payments.



• 2 – Integration/single hub

• 3 – Security tech


• Explore how to serve cost-conscious SMBs whilemaintaininggoodprofitmargin.

Minimizing Pain

• Community bank and credit union SMBs had the lowest incident of reported pain overall, although 28% cited problems findingtimetogettobranch.Only17% of them experienced the next mostfrequentlyciteddifficulty,findingknowledgeable people.

• Train/sensitize RMs to promote services that can be used to cut down on branch visits.

• Be mindful that, for companies


Primary Financial Institutions

23% of SMBs use their OFI to outsource payments.

Banks typically aspire to be their customers’ primary financial institution (PFI). How banks become the PFI might be the result of an SMB openingitsveryfirstbusinessaccountormovingitsrelationship;thatmovemightcomeaboutgradually,asacompanytransitionsmoreofitsbusinesstothebank–changingtherelationshipfroman“otherfinancialinstitution”(OFI)toaPFI–orinonefellswoop,whentheSMBdecidestoselectanewleadbank.Openinganewaccountorapplyingforaloanisoftenthefirststepinestablishinganewbankrelationship.The 2019 PACE results around mobile app adoption highlighted two areas of opportunity for banks acting in an OFI capacity and potential sources of alarm for banks who have PFI status:

Findings Calls to Action

Leveraging Trust: Mobile

• SMB use of mobile apps decreased across all market segments, except for three groups: 87% of SMBs over $100Musethemtoplanfinances,77% between $50M-$100M to open new accounts, and 77% over $50M to submit loan applications.

• Monitor customer usage/activity to identify potential product gaps or competitive threats.

• Considerpartneringwithafintechorpreparetofillgaps;determinewhereto compete and when it makes sense to work together.

Payments Processing

• Eighty-eight percent of SMBs outsource payments. Seventy percent of them use their PFIs to process payments.

Other Financial Institutions

Leveraging Trust: Mobile

• Use of mobile apps has increased in eight out of nine activities, including three gateway applications: Open new accounts, apply for loans, and invest capital.

• Consider programs to expand and cross-sellSMBswhofitthebank’starget market.

• Make sure to provide additional apps that enable SMBs to manage their daily operations.

• Considerpartneringwithafintechorpreparetofillgaps;determinewhereto compete and when it makes sense to work together.

Payments Processing

• Twenty-three percent of SMBs use their OFI to outsource payments.

• Thirty-three percent of SMBs who are using mobile apps have used them to open new bank accounts at other financialinstitutions,and9%didsowithafintech.

• Thirty percent of SMBs who currently use mobile apps have used them to apply for loans – a bank’s bread and butter–atotherfinancialinstitutions,and11%didsowithafintech.

It’s important to note that these responses are not mutually exclusive; SMBs could be using a mobile app to open new accounts at their PFI, as well as at their OFI, and the statistics do not includeonlineandofflinechannels.Assuch, they don’t paint the entire picture. The 2019 PACE results show that not only do SMBs trust their PFIs as mobile app providers, most of them also use apps from their PFI.

Moreover, the pace isn’t slowing. Using an app provided by a non-PFI bank has increased in eight out of the nine categories surveyed over the last 12 months: good news if you’re an OFI, not so good if you’re a PFI.

If the mobile channel is the channel of the future, then if banks are not keeping pace, they’re falling behind.


Conclusion

SMB is big business. Concentrating on the following areas will enable banks to succeed in today’s market and prepare for the demands of tomorrow:

• Managing churn

• Building out trust

• Equipping their people

• Focusing on the user experience

The good news is you don’t have to go it alone. FIS has the products, resources, and knowledge to help you succeed.

©2019 FISFIS 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.

About the Survey

Since 2015, the annual FIS PACE report has provided valuable insights into how well banking providers are meeting customer expectations. For the 2019 SMB survey we canvassed 586 U.S.businesseswithatleastfiveemployeesand$500,000to$500millioninannualrevenue.We excluded SMBs from the banking industry.

Respondents have worked at their companies for at least one year and lead or share decision-makingresponsibilityforfinancialservicesactivitiesandforselectingfinancialinstitutions. We asked them to rank the importance of key performance indicators (KPIs) for banking and then rate the performance of their primary banking provider against those indicators. We also asked about relevant banking and technology trends.

Methodology

The online survey was conducted by Ipsos Public Affairs in January2019.ThisisthefifthyearFIShasconductedaPACEsurvey for the consumer market and the third year for the SMB market. The sample size for the U.S. SMB study was 586.

About FIS

FIS is a global leader in technology, solutions and services for merchants, banks and capital markets that helps businesses andcommunitiesthrivebyadvancingcommerceandthefinancialworld.Forover50years,FIShascontinuedtodrivegrowthfor clients around the world by creating tomorrow’s technology, solutions and services to modernize today’s businesses and customer experiences. By connecting merchants, banks and capital markets, we use our scale, apply our deep expertise and data-driven insights, innovate with purpose to solve for our clients’ future, and deliver experiences that are more simple, seamless and secure to advance the way the world pays, banks and invests. Headquartered in Jacksonville, Florida, FIS employs about 55,000 people worldwide dedicated to helping our clients solve for the future. FIS is a Fortune 500® company and is a member of Standard & Poor’s 500® Index. To learn more, visit www.fisglobal.com.

For More Information

Banking providers and clients, please contact:Stephen KaneSenior Vice PresidentFIS Marketing, Banking [email protected]

Press and media, please contact:Kim SniderSenior Vice PresidentFIS Corporate [email protected]

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