Most community bank executives already know their commercial clients use outside providers, but fewer have asked why. The instinct is to read fragmentation as a loyalty problem or a sign of a weakening relationship and respond to that. Usually, the underlying reason resides in convenience or functionality.
Businesses add a second bank or fintech tool because they have a piece of daily financial work that must be done, and the fastest path to doing it wasn’t through their preferred financial institution. The relationship may survive, but some or most activity shifts elsewhere.
Key Takeaways
- Fragmentation rarely indicates a loyalty problem. It’s a business routing a specific piece of their daily work to whichever provider makes it the fastest and easiest.
- An open account doesn’t mean an intact relationship. Payments, cash visibility, and reporting are increasingly moving to other providers, while the account stays put.
- The triggers are specific, not systemic. Onboarding friction, payment speed, and fragmented visibility push businesses toward fintechs or secondary banks.
- Fragmentation concentrates heavily among operationally complex businesses, which have the most to lose and the most to gain from a bank that closes the operational gaps.
Why Commercial Relationships Fragment Across Multiple Providers
Fragmentation rarely occurs as a singular decision. It builds gradually, following one of two common paths.
- Outgrowing the relationship. A business decides it has outgrown its primary institution’s capabilities and shifts significant layers of the relationship, including deposits, credit, and treasury services, to a larger bank that can support its scale.
- Layering with new relationships. The business stays but layers outside tools on top of its existing relationship: a second bank for a credit product its primary institution doesn’t offer, a fintech for expense management, or a dashboarding platform that pulls full cash visibility across accounts into one clear view. According to Datos Insights, 39 percent of companies now maintain relationships with more than seven financial institutions.
An account can stay open long after the reasons for keeping it there have moved elsewhere. A business that once routed their payroll, vendor payments, and cash management through their community bank starts to split that work across three or more providers, each chosen because they solve that one problem very well. While the account may remain at the primary bank, the operating activity happens elsewhere.
One major reason why some businesses develop secondary financial relationships is that they’ve outgrown what their current institution offers.
What Pushes Businesses Toward Other Banks and Fintechs
The specific instances that trigger the move are seldom a reflection of the bank as a whole. They’re narrower: can the bank support the piece of work that the business needs done today?
- Onboarding friction. A business that needs an account to be open and functional within days won’t wait weeks for a manual paperwork review, but it will remember the friction the next time it needs to add something new.
- Payment capability. A business that needs to move money in real time, not on a standard batch cycle, will begin to look elsewhere if their bank can’t keep pace.
- Cash visibility. A business managing multiple accounts needs a 360-degree view of its cash position instead of having to rely on multiple logins and a spreadsheet stitching it all together by hand.
Research from Datos Insights found that 36 percent of businesses cite ease and speed of onboarding as a top factor when choosing a financial institution, and 87 percent of midsize and large businesses expect to use real-time payments by the end of 2026. None of this reflects dissatisfaction with the banking relationship. Rather, it reflects a business doing its best to get payroll out the door.
Fintechs rarely win a commercial relationship outright. They win a specific job.
Businesses lean toward fintechs for expense cards, payroll, or faster payments because the tool solves one specific problem better and faster than their bank does. If it works, the business may expand its use of that tool, becoming even more deeply embedded in the fintech’s ecosystem. Eighty percent of millennial-run businesses believe fintech companies offer more products and services than their primary financial institution, and 12 percent of small and midsize businesses now borrow from fintech lenders instead of their bank.
The bank doesn’t lose the business entirely, but it slowly loses the reasons the business needs it.
The risk is cumulative. Each job a fintech captures is one fewer reason for a business’s operating balance and payment activity to stay with their primary bank. They can use four or five outside tools, each addressing real gaps their bank couldn’t bridge, and arrive at a banking relationship that looks stable on the surface while most of its financial activity runs entirely elsewhere.
Why Multi-Bank Relationships Cost More Than They Seem
A fragmented commercial relationship can look healthy on paper. The accounts are still open, the loan is still on the books, the business owner still speaks highly of the bank and stays in touch when the banker calls.
Behind the scenes, the activity tells a different story. Payments are running through another provider, cash visibility lives on a different platform, and reporting happens outside the bank’s systems entirely. The bank’s view into how the business operates, the kind of insight that makes a credit decision happen faster or a renewal conversation easier, keeps narrowing.
Operating-account primacy is directly tied to where the operating activity runs, not just where there is an open account. Once the activity moves, the account becomes a formality rather than the center of the relationship. Over time, the bank finds itself managing smaller portions of the business’s financial life.
When commercial customers move business to a secondary financial provider, your institution loses insight into their daily financial operations.
How Community Banks Win Back Operating Activity
Winning back lost activity starts with knowing where the fragmentation concentrates. It clusters in specific kinds of businesses, and those businesses follow certain identifiable patterns.
It can be seen across construction firms managing draw schedules and subcontractors, property managers overseeing multiple entity balances and reserve accounts, or law firms handling trust accounting across client matters. These businesses have some of the greatest operational complexity, giving them more reasons to spread their financial activity across providers and more to gain from a bank that can bring it all back together.
Community banks already hold a distinct advantage in these markets: trust. More than 75 percent of small and midsize businesses use a physical branch at least once a month, and 73 percent say their connection to branch staff matters to the relationship, rising to 80 percent among millennial-run businesses. Fintechs and larger national competitors can’t replicate that differentiator.
Trust alone can’t win the activity back. That reaffirmed trust must extend into the operating workflow the business relies on every day, through approvals, reconciliation, and reporting, rather than stay confined to the relationship that sits on top of it. A business that trusts its banker but still exports transaction data into a spreadsheet hasn’t been given a concrete reason to bring that work back. Give it one, and the activity follows.
Our companion white paper, How Community Banks Win Commercial Relationships, goes deeper on what that shift looks like in practice. You’ll learn how the commercial banking experience changes when operational gaps close, how needs vary across business segments like these, and how community banks can compete for complex commercial relationships without matching larger institutions capability for capability.
Download the white paper
Brian McCumber, VP – Product Portfolio Strategy
Brian leads commercial deposits strategy and execution for CSI’s community bank clients. Before joining CSI, he spent seven years at FIS leading retail and commercial deposits product management for its next-generation core banking system. He previously held leadership roles at Harris Bank, now BMO Bank, across treasury management services and retail and commercial deposit operations. Brian began his career in accounting and finance within the technology and business services industries.
He holds a bachelor’s degree in business administration from the University of Dayton and an MBA from Xavier University. He has also been a certified public accountant registered in Ohio for more than 30 years.