The Paradox That’s Reshaping Community Banking

Small and midsize business (SMB) owners have a complex relationship with their banks. 

On the one hand, 61% of this customer segment report being very satisfied with their primary business bank’s service quality, according to 2023 research from the consulting firm Cornerstone Advisors. Fifty-six percent say they’re satisfied with the range of features their checking account offers. By almost any traditional measure, these are strong satisfaction scores. 

Then Cornerstone’s research asks one more question: Are you looking for a new banking relationship in the next 12 months? Two-thirds say yes. 

This paradox isn’t a measurement error. It’s a structural shift in how SMBs think about banking relationships. And for community institutions, it’s the most important market signal in years. 

The Gap Isn’t Satisfaction. It’s Appetite.
When SMB owners consider switching banks, they don’t cite dissatisfaction with their current provider. They cite appetite for something better. Thirty-nine percent would switch for better checking account features and capabilities. Another 41% cite rates and fees. 

Among mid-market SMBs with $10 million to $100 million in revenue, the appetite is even stronger. Seventy-seven percent are actively shopping, despite expressing satisfaction with their existing relationships. 

Some abruptly switch and close their existing account. Others open an account with a provider that has a better product and then migrate the relationship, rendering their existing account as no longer the primary one. This isn’t the behavior of dissatisfied customers looking for an escape hatch but rather of customers who recognize that their banking relationship is a strategic choice. 

Your competitors are also noticing. Megabanks control nearly 90% of SMB checking accounts, and they’re leveraging that dominance to bundle value-added services and create pricing incentives that drive deeper engagement. Community banks, historically focused on relationship banking and local knowledge, have ceded the checking account modernization space to larger institutions and fintechs like Mercury, Brex and Square that package banking with value-added services and integrated tools.

But the Cornerstone research reveals something that changes the calculation entirely. 

The Real Problem SMBs Are Trying to Solve
Sixty-four percent of SMBs have experienced cybersecurity threats in recent years. One in five say those threats significantly impacted their business. Sixty-eight percent have dealt with payment fraud. Fifty-six percent struggle with cash flow forecasting while 54% struggle with collecting outstanding invoices. 

These aren’t abstract pain points. They’re the difference between a healthy business and one in crisis. 

But more than six in 10 SMBs currently pay for cybersecurity protection, business identity theft protection and data breach protection through various other vendors. Sixty-three percent pay for credit monitoring. They’re already buying solutions, piece by piece, from different providers. 

The competitive opportunity isn’t to educate SMBs on why they need protection. It’s to become the trusted provider they prefer to manage that protection. 

When Cornerstone asked SMBs how interested they’d be in having these services bundled directly into their business checking account, 61% said they’d be very interested in bundled cybersecurity, 60% for identity theft protection, 59% for data breach protection and 57% for credit monitoring. 

SMBs don’t need convincing to pay but conviction that your bank is the right provider. 

The Strategic Pivot for Community Banks
This research points to three distinct imperatives your entire organization must address. 

Imperative 1: Recognize that the competitive battle has shifted away from price. Community banks cannot outcompete megabanks on rates. But you can outcompete them on understanding what SMB owners care about and delivering solutions that address those specific needs.

Imperative 2: Stop thinking about SMB checking as a transaction account that barely pays for itself. Start thinking about it as a strategic relationship lever. Bundled value-added services like the ones mentioned create three direct revenue opportunities: service fees from the protections themselves, debit card interchange from increased usage and downstream lending relationships.

Imperative 3:  Align your entire organization around what the customer cares about, not the internal metrics for your organizational groups. The business owner cares about one thing, “Will this bank help me reduce risk and grow my business?” If your answer to that question is compelling and credible, the revenue follows naturally. 

The paradox of SMB banking is that community banks have over-relied on local relationships to win this market. But the window to reclaim the space is open. 

Here’s the playbook and payoff: Build checking accounts around real SMB pain points like bundling cyber protection and cash flow management services they’re already paying for separately at a lower price point. The payoff is you create products the megabanks and fintechs can’t quickly replicate. And you better monetize the relationships by providing more value.