It’s no secret that deposits have been dominating the discussion around banking for the past several months. And in the wake of the multi-billion dollar Silicon Valley Bank (SVB) and Signature Bank collapses, it is more apparent than ever that SMB deposits will be a focal point in the long haul for smaller banks.
Given the recent bank failures, many companies – including those affected by both collapses – are switching to larger banks in order to feel more secure about their deposits. As a result, the onus is on smaller banks to ramp up their pursuit of SMB deposits. Even before the collapses, according to BankDirector, the number of banks wanting small and medium-sized business (SMB) deposits grew from 41 percent in 2022 to a whopping 72 percent in 2023.
Deposit opportunities are certainly out there, but how can banks identify where these opportunities are? How can they leverage tools – such as Industry Intelligence – to target cash-intensive industries and identify deposit-rich opportunities within those industries? And, perhaps most importantly – how can they relate to small business owners within these spaces and gain their trust given the general uncertainty related to banking right now?
I’ve mapped out some ideas to help target the right industries – and ultimately grow their deposits in the SMB space.
1. Target “high-potential,” cash-intensive industries
If I asked a room full of bankers – and really anyone with any working degree of industry knowledge – they would be able to give me a list of cash-intensive industries. In those circles, it’s common knowledge that industries such as insurance, associations, municipalities, appraisers, and labor unions are rich with cash and deposit opportunities. There’s your answer, right?
Not so fast: The reason these industries are widely known as cash-intensive is because they are highly competitive. These customers demand top dollar and top return on their deposits, and because of this, they are not necessarily the industries with the most opportunity. So this begs the question: Which industries are rich with opportunity, and how do I identify opportunities within them?
These “high-potential” industries – such as funeral homes, travel agencies, photography studios, sports training services, and chiropractors – have a more even playing field, and there are more opportunities to develop a broader relationship with them because they are less competitive. They are the quintessential businesses with the “mom and pop” owners who are trying to take advantage of every penny and build as much wealth and security as they can – putting away operating expenses and trying to stimulate the economy in the process.
That right there is your gold mine. And you can use an industry’s Working Capital Summary and the Financial Benchmarks chapter of a Vertical IQ Industry Profile to identify the potential in these industries. You can use the “current ratio” located in Financial Benchmarks to determine an industry’s liquidity/near-term solvency and the “cash to total assets” to give you insight on how much cash could be “sitting” in a typical company in that industry. Additionally, any industry whose average “quick ratio” is greater than 2.0 probably means there is some extra cash laying around – and that it might be worth looking into. The quick ratio is similar to the current ratio, but it excludes inventory from its calculation.
2. Articulate ways your solutions can help businesses
So you’ve identified a few high-potential, cash-intensive industries based on the figures in Financial Benchmarks. But numbers are only half the story; you also have to put the pieces together to figure out the best solutions. Where is that “whitespace” within their bank product usage – that potential for you to fill in the gaps between a business’ liquidity and profitability?
There are a few great tools on the Vertical IQ platform to utilize for this. One is looking at Financial Ratios and paying particularly close attention to days receivables and operating income. You’ve seen there is high liquidity and cash flow in the industry; but how many days is it taking to pay the bills? How large is that gap? Do they have collections outstanding? How efficient are they at turning sales into profits? What is a day worth to that industry?
This is a perfect opportunity to assess solutions that can help them fill that gap – such as ACH services, merchant services, and remote deposit capture – and prepare for your conversations to address these concerns with your solutions.
A few other chapters in the Vertical IQ platform – How Firms Operate (Profit Drivers in particular), Working Capital, Bank Product Usage, and Current Conditions – all help fill this whitespace as well. They give you the context to be able to understand how cash flows through industries, what issues are affecting them, and which solutions might make the most sense.
Again, the numbers are half the story, but being able to read between the lines and assess where there is opportunity for your solutions to help business owners speed up their processes and get the most value out of their day – that is what’s going to win you more SMB deposits.
3. Connect with SMB owners in cash-intensive industries
At this point, you’ve identified some high-potential, cash-intensive industries. You’ve seen where your solutions can help fill their gaps and help them maximize their profits each day. But then comes perhaps the biggest challenge: How do you connect with SMB owners in a meaningful, salient way? What is the best way to earn a seat at the decision making table?
It all starts with understanding the demands, challenges, and psychological dispositions of different types of small business owners and how you can level with them on why investing in your services makes sense. What affects their decision-making? What are some of their traits? How can you build trust and develop a long-term business relationship?
For example, businesses owned individually – such as dental labs, landscapers, and caterers – typically have business owners who work long, hard hours and have a fear of failure, and this fear may be amplified because of current events. They’re driven by the desire to create profitability and longevity for their business. Oftentimes, this also means that the business isn’t necessarily run the most efficiently – which is an opportunity for you to fill those efficiency gaps and therefore win that business’ deposits.
But given the anticipated sensitivities of these business owners – especially now – it is critical for the conversation to begin with you relating to their industry with curiosity and respecting their hard work and craft. Being sensitive to their vulnerabilities helps you frame the conversation around ways your solutions can quell their concerns about their business.
The bottom line
Obviously, winning SMB deposits is critical for your book of business. The liquidity crunch and the SVB and signature bank collapses loom heavy over banks, and there is a ton of urgency to initiate deposit growth strategies as quickly and as effectively as possible. Like I mentioned before, the role you play in all of this is getting business owners to understand the value of each day running their business and how you can help them fill that whitespace and maximize their profits.
But remember: In order to sustain enduring relationships – and profitability – in these spaces, it is critical to understand what is happening in the world of these SMB owners and keep that aspect of humanity in every conversation. Do your industry research. Assess the ways you can address their cash flow and profitability concerns. And reach out to the business owners within these cash-intensive industries with genuine curiosity – and interest – to earn the trusted advisor status you need to establish an ongoing, prosperous relationship with them.
>> Learn more about how Industry Intelligence from Vertical IQ can help you make the most out of your SMB deposit opportunities!
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