How small business firms select a bank: SUMMARY AND CONCLUSION

This paper compares the factors which small business firms consider important in the bank selection process in order to shed light on whether banking deregulation in the USA will have an impact on small business. It is based on a mail survey of chief executives of 115 small business firms in the United States and 614 small business firms in Australia. Since restrictions no longer inhibit bank mergers in the USA, the industry structure is beginning to resemble the banking structure that has existed in Australia since the mid-1980s; an industry dominated by four major banks.

In the study, weighted average rank scores on each of 14 individual bank selection factors were calculated and examined to determine which factors were important and whether or not there were significant differences between countries. The results show that small firms in both countries ranked the bank’s willingness to accommodate their credit needs as being important. However, US firms considered the range of products and services, convenient location, financial health and personal relationships as being more important. Australian firms, on the other hand, placed greater emphasis on long- term relationships, day-to-day efficiency and competitive prices.

Since many of these differences are related to structural differences in the banking industries in the USA and Australia, the factors affecting the bank selection process in the USA will probably change as the market structure becomes more concentrated. This will no doubt have important marketing implications for US banks that target small business customers. The study may also have marketing implications for banking organisations in other parts of the world.

The currency crisis and collapse of many South-east Asian economies left the banking industries in those nations weak. As the governments in those nations have worked to strengthen their economies, weaker banking institutions have been acquired. This in turn could have a detrimental effect on small business firms unless the surviving banks take positive steps to ensure that their smaller business customers’ needs are met and their trust is maintained.

In Europe, the competitive landscape has changed dramatically with the formation of the European Monetary Union and introduction of the euro. As new commercial opportunities have opened up for small business customers, their banking needs have changed. With a single currency, same-day liquidity management has become an issue along with the desire for lower transaction costs. To survive, European banks will have to deliver products that are tailor-made to small and large business clients alike. The study also indicates that they should place far greater emphasis on efficiency of day-to-day operations.

Worldwide, the rapid change in technology is not only changing the economics of banking, it is changing the extent to which small business firms compete internationally. The traditional brick and mortar bank is now the most expensive way to deliver services to small business firms. In addition, small business firms are no longer ignoring the international marketplace. For a small business firm in the future, the choice of a banking partner will ultimately come down to the one that understands their business, listens to their concerns, and can also assist them in obtaining a competitive advantage internationally. Many of the other selection criteria will no longer be a major concern to small business firms.