January 20, 1997

WHAT BANK MEGAMERGERS MIGHT MEAN FOR SMALL BIZ

As high-profile bank mergers keep making headlines, small-business owners can't help but wonder how these corporate couplings will affect them. Some perspective on this, and other banking issues, comes from a newly released study by the Consumer Bankers Assn. Conducted by Furash & Co. in Washington, D.C., the survey canvassed 36 of the country's largest commercial banks to find out how they'll approach the small-business market -- a sector bankers have considered hot in recent years.

"Every single institution is focusing on small business," says Mark Suter, one of the study's authors. This includes a handful of colossal "national" banks that with direct-mail, telemarketing, and advertising have begun encroaching on once-protected territories of regional and local players. Sixty-seven percent of survey participants identified "banks marketing nationally" as competitors, with Wells Fargo, Bank of America, and Banc One mentioned as the most aggressive "out-of-area" banks.

Survey-takers also said their small-business segment is under increasing competitive pressure from nonbank lenders, most notably American Express and Merrill Lynch. Eighty-one percent of respondents viewed Merrill as a competitor, up from 60% in the 1997 survey. AmEx is a rival for 78% of the surveyed banks, a nearly a twofold increase from last year's study.

What does this mean for small businesses? For one, the fierce competition for lending and business services should stabilize, if not lower, loan rates and business-service costs. And the highly centralized banks will increasingly rely on data-mining and direct marketing, instead of branch managers, to make their pitch to small-business customers. "Companies should get fewer solicitations for things they don't want," says First Union Corp.'s J. Kevin Toomb, who sits on the CBA's small-business committee. "[Pitches] will be more targeted to the needs of the company."

Other survey findings: Banks are anxious to shift their customers to electronic banking, though few have actual systems in place -- 86%, for example, have a Web site, but only 21% offer loan applications electronically.

Banks are continuing their move into nonbank services. Over the next 18 months, 28% plan to offer property and casualty insurance, while an additional 22% will sell medical insurance, usually through a third-party vendor.

By Dennis Berman in New York