Credit unions are known for concentrating on specific communities or affinity groups and infusing their services with a personal touch. Traditionally, this meant focusing on consumers rather than small-business owners. 

In recent years, that tendency has been changing. 

A Datos Insights survey of 1,000 small-business owners in the first quarter of 2023 found that more than 50% of small businesses consider one of the four biggest U.S. banks to be their primary financial institution. Yet there is a rising interest among credit unions in penetrating the small-business space with well-rounded digital offerings, from cash management tools to fintech integrations. The reasons vary from raising deposits to boosting fee income to deepening relationships with members — some of whom are entrepreneurs — as their needs grow more complex.

The market is still relatively untapped. 

“So many small businesses feel that their financial institution doesn’t fully understand their needs,” said Christine Barry, head of banking and payments insights and advisory services at Datos Insights. “Most [financial institutions] consider increasing their success in this space critical to their institution’s overall success.” 

To fully capitalize on this membership base, credit unions have to embrace digital banking. 

“They don’t have the large branch networks, so it’s important for that reason, but also for end-user preferences,” said Barry. “Small businesses are increasingly looking at the digital presence of an institution — the tools and capabilities they can offer, and the ability to self-service at any time.” 

Ian Benton, senior analyst in digital banking at Javelin Strategy & Research, agrees. 

“It’s about convincing your existing member base this is where they want to go for their first business account, because a lot of them are usually operating on consumer accounts right now or using Square or PayPal,” he said. 

Mountain America Credit Union in Sandy, Utah, is one institution ramping up its capabilities. 

“A lot of stereotypes in the industry are that credit unions are limited in what we can offer,” said Kyle Guest, vice president of business services at the $17 billion-asset institution. 

When Mountain America, or MACU, began offering small-business banking more than a decade ago, its services closely resembled retail banking services. MACU upgraded its online and mobile banking capabilities for business owners over time and started making more significant investments in its business services five years ago.

Now, members can find checking and savings accounts, Small Business Administration loans, lines of credit, cash management tools such as remote deposit capture and positive pay, credit cards and more on the credit union’s website. 

“What sparked this is the constant change of businesses and technology,” said Guest. For instance, the ways that businesses collect money from their customers has evolved from cash and checks to electronic methods. “Businesses will ask us, can you let me pull a file from my accounting system to send for payroll? They have a specific list of needs. If we are not set up to meet those, we are losing out on opportunities.” 

MACU leans heavily on fintech partners to make its business suite possible, including Alkami for digital banking; Jack Henry for core processing and remote deposits; Plaid for various integrations; and more. 

Digital banking providers have been stepping up their product sets to meet this growing appetite. Key features for credit unions to consider are seamless, real-time payments; integrations with third parties that small-business owners value, such as accounting software; expense management tools; and cash flow forecasting. 

In other words, provide “anything to help them better manage their business and collect the money owed to them,” Barry said. 

The financial technology provider Nymbus came out with Nymbus SMB in August, a package of business banking software aimed at credit unions and community banks that include invoicing, cash management tools, cash flow analytics, a digital banking platform and what Nymbus calls concierge onboarding. It designed the product with Michigan State University Federal Credit Union in East Lansing, Michigan. 

The digital banking platform Apiture offers tools relating to cash management, fraud prevention and detection, and more. It released its Business Insights feature in the first quarter of this year, as well as a redesign of its automated clearing house origination workflow to simplify it for small-business users.

“We are increasingly getting feedback from our credit union clients that they are interested in more functionality to support small businesses,” said Jennifer Dimenna, senior vice president of product at Apiture. “They are looking at fintechs that offer niche services specifically for businesses and bringing those to us, [asking] hey, have you thought about integrating with this company or that company?” 

The top two requests Apiture fields from its credit union clients are for real-time payments and business financial-management tools, where business owners can see analyses of their transactions and recommendations for how to improve. 

Dimenna said there is not much difference between banks and credit unions in the technology they are looking for, but “where credit unions stand out is around that service approach, treating their membership in a specialized way.” 

The digital banking provider Bankjoy updated its business banking platform in May, adding security and fraud prevention tools, the ability to aggregate accounts from different institutions, and integrations with third-party vendors such as QuickBooks. 

Lafayette Federal Credit Union in Rockville, Maryland, is one of Bankjoy’s customers. Bryan Bast, principal vice president of operations at the $2 billion-asset institution, estimates that Lafayette has been serving small businesses for about two decades, starting with local mom and pop shops. 

“That has grown over the last several years to include some medium- and larger-scale businesses where they need more solutions,” Bast said. “Not just a checking or savings account, but to control their own digital banking experience and to provide ACH and check deposit services.” 

He credits Bankjoy with helping Lafayette unite its digital business banking features in one place, including online banking, ACH transactions, remote deposit capture and wire transfers. 

The credit union turned to Bankjoy in March 2022. Lafayette surveys its membership annually. “Since converting to Bankjoy our digital banking experience has gone from a sore spot to being one of the things that is most improved,” he said. “It’s a complete 180.” 

Dean Jenkins, the vice president of product marketing at digital banking provider Q2, feels that credit unions are more in tune with their members’ needs than banks and tailor the customer experience accordingly. Q2’s Innovation Studio, which it launched in 2021, lets financial institutions access pre-integrated fintechs, including those that help small businesses with payroll, accounting, expense management, lending, and financial management. 

“It’s early innings still, but there has been a lot of interest from the credit union side,” Jenkins said. 

Catering to small-business owners “has been the challenge for decades where branch location and in-person interactions were differentiators,” Jenkins said. “Now, the preference for digital has started to level the playing field where smaller and midsize financial institutions, whether that is credit unions or banks, can compete.” 

MACU agrees. 

“There are some things [the largest banks] can do from a technology side that we can’t do, and we stay out of those lanes,” Guest said. “There are many areas for businesses of $20 million to $30 million in revenues and below where we have a niche and can provide a good service for them without sacrificing technology.”