Small businesses are essential to the economy, yet their banking needs evolve as they grow and their expectations change as fintechs and consumer financial apps get more traction. Traditional banks must adapt to retain and strengthen relationships with small business clients. Understanding what drives trust in these relationships is crucial for long-term customer retention.
A recent American Banker and Gusto Embedded survey in Q3 2024 examined how small businesses engage with financial institutions, the factors influencing their banking choices, and the role of integrated services in maintaining trust. The findings reveal that while banks remain the primary financial partners for many small businesses, they are not the sole providers—many businesses rely on additional service providers for payroll, financial advising, and technology solutions.
Key Findings
- Banks are the primary financial partners for 62% of small businesses, but many rely on multiple financial providers.
- Trust is critical to retention, with 97% of banking leaders ranking it “critical” or “very important.”
- Four pillars drive trust: Acting in a business’s best interest, keeping money safe, protecting from fraud, and staying competitive.
- Digital experience and integrated services matter, especially as fintech solutions grow in popularity.
This blog explores key research insights, the primary drivers of trust in banking, and actionable strategies banks can implement to strengthen their small business relationships. By enhancing digital experiences, offering integrated value-added services, and prioritizing security, banks can position themselves as indispensable partners for small businesses in a rapidly changing financial landscape.
Understanding Small Business Banking Relationships
The Role of Banks and Other Financial Partners
Banks remain the top financial partners for small businesses, but additional service providers play key roles in meeting business needs. The table below highlights the percentage of SMBs that work with various financial service providers:
Importantly, 7 out of 10 small businesses surveyed use 2 or more banks or financial institutions. While traditional retail banks may still be the primary financial institution for small businesses, they are not the only financial services provider for most as the following chart from American Banker demonstrates:
Why Small Businesses Work with Multiple Financial Providers
While banks remain the primary financial partners of most small businesses, many companies rely on multiple service providers to meet specific financial needs. According to the Small Business Administration (SBA), 85% of small businesses still use traditional banks as their primary financial institution, but 40% also utilize fintech solutions for payments and financing. (Source: SBA) This diversification reflects the evolving landscape where businesses seek specialized services beyond what traditional banks offer. Research indicates that seven in ten small businesses use more than one financial institution or service provider. Various factors drive this trend, including the need for specialized expertise, competitive pricing, and advanced digital integration.
For instance, 46% of small businesses use third-party payroll providers instead of their primary banks, highlighting a gap in traditional banking services. Additionally, 50% of small businesses turn to accountants for financial management, while 37% rely on IT and technology consultants to optimize their operations. The reliance on multiple providers reflects the growing complexity of small business financial needs and the necessity for tailored solutions.
Security and fraud protection also influence these decisions. Many businesses seek alternative providers for fraud prevention tools and more comprehensive risk management solutions. Similarly, small businesses working with financial advisors (31%) or insurance carriers (36%) demonstrate the demand for holistic financial planning beyond what a traditional bank offers.
Banks can identify opportunities to enhance their service offerings by understanding why businesses use multiple providers. Providing integrated payroll, lending, and advisory services could help financial institutions retain more small business clients and reduce their reliance on external providers. The data suggests that banks that can bridge these service gaps stand to gain a significant competitive advantage in the small business sector. Accountants, payroll providers, technology consultants, insurance carriers, and financial advisors frequently supplement banking services. Businesses often seek additional providers for specialized expertise, better pricing, or enhanced digital integration.
Payroll, for example, is one area where small businesses frequently turn to third-party providers rather than relying on their primary bank. This trend suggests that banks could enhance customer retention by offering integrated services like payroll that align with business operations.
The Role of Trust in Small Business Banking
Trust is fundamental to banking relationships. According to the Gusto Embedded and American Banker survey, trust in financial institutions is influenced by four primary factors: acting in a business’s best interest, ensuring the security of funds, protecting against fraud, and keeping up with customer expectations. These factors explain 80% of how small businesses perceive and evaluate their banking partners.
Among these trust pillars, acting in a business’s best interest is the most influential, accounting for 30% of the variance in trust levels. Keeping business funds safe follows closely at 24%, while fraud protection and meeting customer expectations contribute 13%. This data underscores the importance of proactive, customer-centric strategies in banking.
Banking leaders also acknowledge the importance of trust, with 97% of surveyed executives stating that it is either “critical” or “very important” to customer retention. However, gaps emerged when asked to rate their institutions on these trust pillars. While 78% of banking leaders felt their institution excelled at keeping business funds safe, only 60% believed they effectively acted in their clients’ best interest. Furthermore, only 13% rated their fraud protection efforts excellent, and only 13% felt they were keeping up with customer expectations and competitive alternatives.
To bridge these gaps, banks must take deliberate steps to reinforce trust. Providing clear communication on fees and policies, ensuring seamless integration with financial tools, and enhancing security features are crucial. Additionally, offering personalized financial guidance and proactively addressing fraud concerns can strengthen relationships with small business clients. Banking leaders recognize the importance of fraud protection, though many acknowledge that there is room for improvement. Businesses will likely remain loyal to financial institutions, prioritizing security and proactively educating clients about fraud risks.
Improving Digital Experience
The shift toward digital banking is accelerating, with over 70% of small business owners preferring mobile or online banking over in-branch visits. (Source: American Banker) This trend underscores the growing need for banks to offer seamless digital services that allow quick account management, loan applications, and integration with financial tools. Banks that fail to meet these digital expectations risk losing clients to fintech and neobank competitors.
One key expectation from small business owners is a seamless digital experience. According to our survey, 76% of small business owners prioritize ease of use when considering value-added services from their banks. Many businesses expect banking platforms to be as efficient and user-friendly as fintech solutions, and 45% specifically look for seamless integration with other financial services such as payroll, accounting, and payment processing.
Digital banking services allowing quick account management, easy loan applications, and seamless integration with other financial tools can significantly enhance customer satisfaction. Additionally, businesses increasingly value automation, with features like real-time transaction updates, AI-driven financial insights, and mobile banking capabilities becoming key differentiators. With 67% of small business owners also emphasizing competitive pricing, banks that combine affordability with strong digital services are more likely to retain customers.
Moreover, the demand for digital onboarding is rising. With minimal paperwork, business owners expect to open new accounts and apply for loans quickly. Some fintech companies offer account set up in minutes, setting a new benchmark for traditional banks. By streamlining digital account opening and ensuring a frictionless user experience, banks can compete more effectively with neobanks and fintech disruptors. Many businesses expect banking platforms to be as efficient and user-friendly as fintech solutions. Digital banking services allowing quick account management, easy loan applications, and seamless integration with other financial tools can significantly enhance customer satisfaction.
Offering Integrated Value-Added Services
Integrating additional services into banking platforms presents an opportunity to strengthen relationships with small business customers. A large percentage of small businesses—almost 79% of those considering changing banks—indicate that access to integrated financial services is crucial to their decision-making process. Payroll services, lending solutions, and business insurance are among the features that banks can embed to create a more comprehensive banking experience. Josh Reeves, CEO of Gusto, highlights the importance of collaboration between banks and service providers to deliver solutions that better serve shared customers.
“We’re not bankers, but we help solve related pains in highly regulated industries. By partnering closely with banks via embedded payroll, we want to invest in understanding how to help us all create better solutions for our shared customers.” — To watch the full research presentation, send us an email for access to the American Banker video.
Research indicates that small business owners prioritize ease of use when considering value-added services from banks, with 76% citing usability as a key decision factor. Competitive pricing follows closely, with 67% of businesses stating it influences their willingness to adopt these services. Additionally, 45% of small businesses emphasize the importance of seamless integration with other financial services, such as accounting and point-of-sale systems.
Security is also a top concern for business owners considering value-added services, with 42% of respondents ranking robust security features as a critical factor in choosing financial service providers. Banks that successfully integrate these services securely and in a user-friendly manner can enhance customer loyalty and reduce the likelihood of clients seeking alternative providers. By addressing these priorities, banks can strengthen their role as trusted partners for small businesses while expanding their service offerings to meet evolving client needs. Payroll services, lending solutions, and business insurance are among the features that banks can embed to create a more comprehensive banking experience.
The data suggests that small business owners prioritize ease of use when considering value-added services from banks. Competitive pricing and integration with other financial services are also key considerations. By offering these services seamlessly and securely, banks can enhance customer loyalty and reduce the likelihood of clients seeking alternative providers.
Providing Personalized Relationship Management
Assigning dedicated relationship managers to small business clients can help build stronger, long-term connections. Research shows that 68% of small businesses value having a dedicated banking relationship manager, with 57% stating that access to personalized financial advice significantly impacts their decision to remain with their current bank.
Personalized financial guidance tailored to specific business needs increases customer confidence and satisfaction. For example, small businesses that engage with a dedicated advisor report higher levels of trust in their financial institution, with 72% feeling that their bank acts in their best interest compared to only 45% of those without such support.
Businesses with dedicated relationship managers are likelier to use additional banking products. Sixty-one percent of these businesses select services such as lending, treasury management, or investment solutions from their primary bank. Banks investing in knowledgeable advisors who understand small businesses’ challenges can set themselves apart from their competitors. By proactively addressing the needs of their clients and offering customized financial solutions, these banks can strengthen customer retention. Furthermore, personalized financial guidance tailored to a business’s specific needs increases customer confidence and satisfaction. Overall, investing in experienced advisors is a strategic way for banks to differentiate themselves in the marketplace.
Small Business Banking Retention and Switching Trends
Although small businesses tend to maintain long-term banking relationships, a significant portion remains open to switching providers if their needs are not met. Traditional banks currently approve only 14% of small business loan applications, whereas alternative lenders, such as fintech firms, approve between 25-30% of applications. (Source: Biz2Credit) This discrepancy is driving some businesses to explore alternative financial institutions for better access to capital. Research indicates that 27% of small businesses will likely switch their primary banking relationship within the next two years. This likelihood increases with company size, with 39% of businesses with 250 to 1,499 employees considering a switch, compared to 22% of sole proprietors.
Several factors influence the likelihood of a business switching banks. Integrated financial services play a crucial role, with 79% of businesses likely to switch, stating that access to a broad range of services is important. Competitive pricing is another major factor, as 67% of small businesses emphasize cost-effectiveness when choosing a banking partner. Additionally, the overall quality of customer experience, including personalized relationship management and digital banking features, impacts retention.
Banks that proactively address these needs by offering seamless integration, enhanced digital capabilities, and strong customer support can improve retention rates and strengthen their client relationships. Institutions that fail to meet evolving business requirements risk losing customers to fintech firms and other alternative financial service providers. Larger businesses are generally more likely to consider a change, mainly if their financial requirements evolve beyond what their current institution offers.
Meeting the Expectations of Small Business Customers
Understanding what small businesses want from their banking partners is essential for maintaining strong relationships. However, a 2024 survey by J.D. Power found that only 37% of small business owners believe their bank fully understands their needs. (Source: J.D. Power) This gap presents an opportunity for financial institutions to enhance personalized services and tailored financial products to support small businesses better.
Our survey indicates that 76% of small businesses prioritize ease of use when selecting banking services, underscoring the demand for intuitive digital platforms and streamlined account management. Competitive pricing also remains a top concern, with 67% of business owners considering cost-effective solutions a deciding factor in their banking choices.
Integration with other financial services is another key expectation, with 45% of small businesses emphasizing the need for seamless connectivity between banking, payroll, and accounting software. Security is also a priority, as 42% of small businesses rank robust fraud protection and data security among their top requirements. Additionally, 40% of small businesses state that working with a trusted brand influences their banking decisions, and 36% seek recommendations from peers before selecting a financial institution.
As the financial landscape continues to evolve, banks have the opportunity to reassess and expand their service offerings to better align with small business needs. Institutions that embrace digital transformation, enhance security measures, and offer integrated financial solutions will be better positioned to build lasting relationships with their clients. By addressing these priorities, banks can meet expectations and differentiate themselves in an increasingly competitive market. Businesses prioritize ease of use, competitive pricing, and seamless integration with other financial services when evaluating potential banking partners. Security, brand reputation, and recommendations from peers also play a role in decision-making.
Strengthening Small Business Banking Through Trust and Innovation
Trust is the foundation of strong banking relationships for small businesses, significantly impacting customer retention and long-term engagement. Research shows that the primary factors influencing trust include acting in the business’s best interest, ensuring security, protecting against fraud, and remaining competitive.
Small businesses expect banks to provide:
- Seamless digital experiences
- Integrated financial services
- Personalized support
Key statistics:
- 76% prioritize ease of use
- 67% emphasize competitive pricing
Importance of integrated financial services:
- Nearly 79% of small businesses considering switching banks value integrated services
- Incorporating payroll, lending, and advisory solutions fosters deeper client relationships and reduces attrition
Personal relationship management is crucial:
- 68% of small businesses value having a dedicated banking advisor
- Investing in knowledgeable representatives can enhance client trust and loyalty
Banks have a significant opportunity to reassess and expand their service offerings as the financial landscape evolves. Embracing digital transformation, enhancing security measures, and providing integrated financial solutions will be crucial in meeting customer expectations and fostering long-term relationships.
Summary of Survey Stats
Key Findings
- Banks are the primary financial partners for 62% of small businesses, but many rely on multiple financial providers.
- Trust is critical to retention, with 97% of banking leaders ranking it as “critical” or “very important.”
- Four pillars drive trust: Acting in a business’s best interest, keeping money safe, protecting from fraud, and staying competitive.
- Digital experience and integrated services matter, especially as fintech solutions grow in popularity.
Understanding Small Business Banking Relationships
A survey of 300 small business owners and leaders explored their banking preferences, the role of trust, and how financial institutions can strengthen their relationships. Below is a breakdown of the businesses surveyed:
Business Size Breakdown
| Business Size | Percentage of Respondents |
| Sole Proprietors | 17% |
| 2 to 9 Employees | 25% |
| 10 to 49 Employees | 26% |
| 50 to 249 Employees | 17% |
| 250 to 1,499 Employees | 15% |
Industry Breakdown (Top Industries)
| Industry | Percentage |
| Professional Services | 18% |
| Construction | 18% |
| Retail | 16% |
| Technology | 7% |
| Manufacturing | 6% |
| Educational Services | 4% |
| Healthcare | 3% |
| Real Estate | 3% |
| Financial Services | 3% |
The Role of Banks and Other Financial Partners
Banks remain the top financial partners for small businesses, but additional service providers play key roles in meeting business needs. The table below highlights the percentage of SMBs that work with various financial service providers:
| Financial Partner | Percentage of SMBs Using |
| Retail Banks & Credit Unions | 62% |
| Accountants | 50% |
| Payroll Providers | 46% |
| IT/Technology Consultants | 37% |
| Insurance Carriers | 36% |
| Financial Advisors | 31% |
| Attorneys | 25% |
What Drives Trust in Banking Relationships?
Trust plays a central role in small business banking relationships. American Banker’s survey identified four core pillars that drive trust:
| Trust Pillar | % of Variance in Overall Trust |
| Act in the Business’s Best Interest | 30% |
| Keep Business’s Money Safe | 24% |
| Protect Business from Fraud | 13% |
| Keep Up with Customer Demands | 13% |
These four factors account for 80% of overall trust in a financial institution. While all are important, acting in a business’s best interest and keeping money safe are the most significant drivers.
How Banks Can Build Trust
- Demonstrate Business Alignment: Small businesses expect their banks to provide advice and solutions tailored to their needs.
- Ensure Security: Fraud protection and financial security reinforce confidence in banking relationships.
- Stay Competitive: Offering modern, integrated financial solutions can help banks retain SMB clients.
How Small Businesses Use Multiple Banks and Services
Although 68% of small businesses consider retail banks their primary financial provider, many use multiple providers for specialized services.
- 70% of SMBs use two or more financial providers.
- Payroll services are often outsourced, with only 29% of businesses relying on their primary bank for payroll.
Retention and Switching Trends in SMB Banking
Small businesses maintain long-term banking relationships, but some are open to switching providers.
| Business Size | % Likely to Switch Banks in Next Two Years |
| Total | 27% |
| Sole Proprietor | 22% |
| 2 to 9 Employees | 23% |
| 10 to 49 Employees | 30% |
| 50 to 249 Employees | 24% |
| 250 to 1,499 Employees | 39% |
Bank Performance on Trust Pillars
When asked to rate their performance in trust-building areas, banking leaders acknowledged gaps:
| Trust Pillar | % Rating Their Bank as Excellent |
| Act in Business’s Best Interest | 60% |
| Keep Business’s Money Safe | 78% |
| Protect from Fraud | 38% |
| Keep Up with Customer Demands | 11% |
What Small Businesses Want from Their Banks
Small business leaders identified specific factors that would increase their likelihood of using value-added services from their primary bank:
| Factor | % SMBs Prioritizing This Feature |
| Ease of Use | 76% |
| Competitive Pricing | 67% |
| Integration with Other Services | 45% |
| Strong Security Features | 42% |
| Trusted Brand | 40% |
The Growing Importance of Embedded Services
According to Josh Reeves, CEO of Gusto Embedded:
“We’re not bankers, but we help solve related pains in highly regulated industries. By partnering closely with banks via embedded payroll, we want to invest in understanding how to help us all create better solutions for our shared customers.”
Integrated solutions, such as payroll services, create long-term relationships between banks and small businesses. Businesses that are likely to switch banking providers prioritize institutions that integrate core and non-core financial services.
| Business Size | % That Prioritize Integrated Services When Choosing a New Bank |
| 250 to 1,499 Employees | 76% |
| 50 to 249 Employees | 74% |
| 10 to 49 Employees | 68% |
| 2 to 9 Employees | 45% |
| Sole Proprietors | 46% |
Trust remains the foundation of strong small-business banking relationships. By understanding the trust pillars and addressing key business needs—such as security, competitive offerings, and integrated services—banks can position themselves as long-term partners for small businesses.
