Winning Over SMBs: How Local Banks and Credit Unions Can Compete with Big Banks

Small and mid-sized businesses (SMBs) are rethinking their banking relationships, creating a significant opportunity for local financial institutions. While large national banks offer a broad range of services, many SMBs—especially those in rural areas and lower revenue segments—are shifting their preference toward community banks and credit unions (CUs). The key drivers? Personalized service, local accessibility, and a stronger sense of trust.

In the recent fireside chat “Leveling the Playing Field: How Local Banks & Credit Unions Can Win the SMB Market,” hosted by PYMNTS and i2c, John Gaffney, Chief Content Officer at PYMNTS, and David Durovy, SVP Transformation at i2c, explored the trends behind this shift. They discussed why SMBs are making the switch, how financial institutions can build trust, and what steps local banks and CUs need to take to enhance digital services and remain competitive.

Why SMBs Are Choosing Local Banks and Credit Unions Over Big Banks

The fireside chat highlighted a key takeaway from the “SMB Growth Report: Community Banks Appeal to Small Businesses, But…”: SMBs value personalized service and local access over the expansive offerings of big banks. Many small businesses, particularly those with lower revenues, are more likely to switch financial institutions if they believe they will receive better service, lower fees, and a stronger banking relationship.
This presents a massive opportunity for local financial institutions—but to fully capitalize on it, they must address three key factors:

1. Reputation and Trust Are Critical

For many SMBs, trust is the number one factor in selecting a financial institution. Local banks and credit unions have a natural advantage here, as they are perceived as more customer-centric, accessible, and invested in their local economies.

The discussion emphasized the importance of reinforcing this reputation through tailored services, responsive customer support, and community engagement.
However, trust alone isn’t enough—financial institutions must also compete on loan offerings, product features, and transparency to keep SMBs from turning to national banks.

2. Bridging the Digital Service Gap

Despite their strengths in relationship-building, many community banks and credit unions lag behind national banks in digital capabilities. The fireside chat underscored the importance of:

• Modernizing digital offerings to provide frictionless mobile banking, virtual support, and online loan applications.
• Investing in automation, AI-driven customer insights, and real-time financial tools to meet SMBs’ expectations.
• Partnering with technology providers like i2c to implement scalable, digital-first solutions.

Today’s SMBs expect banking to be as seamless as their other digital interactions, and failing to deliver on this front could drive them toward larger institutions with superior tech infrastructure.

3. Competing on Loan Terms & Product Offerings

The fireside chat also explored what drives SMBs to big banks despite their dissatisfaction with high fees and impersonal service. One of the biggest factors? Access to competitive loan terms and advanced financial products.

Local banks and credit unions can attract and retain SMB clients by:

• Offering competitive, flexible loan structures that are tailored to small businesses.
• Expanding cash flow management solutions and credit programs to rival those of national banks.
• Highlighting lower fees, relationship-based lending, and dedicated support as differentiators.

The Road Ahead for Local Financial Institutions

The financial services landscape is evolving, and local banks and credit unions are in a prime position to capture the growing SMB market. However, success depends on a proactive approach—modernizing digital offerings, strengthening reputation, and competing on financial products.

For institutions looking to bridge these gaps, technology partners like i2c offer the infrastructure and expertise to accelerate digital transformation. With a unified banking and payments platform with scalable solutions, i2c helps banks and credit unions meet SMBs’ evolving needs, enhance operational efficiency, and drive growth.

Watch the Fireside Chat On-Demand

If you missed the live session, you can still access the full recording here. Want to learn more? Connect with i2c today to explore how our unified banking and payments platform can help you win the SMB banking game.