North American banks are becoming more attentive to midsize companies now that a soft market and fierce competition are cutting the profits to be made from serving big corporations. But pursuing the middle market with credit offerings, as most banks are, and investing in industry and investment-banking expertise in hopes of generating future business may not be the way to go, recent McKinsey research shows.¹ For many midsize companies are not primarily interested in such offerings or expertise. But by giving these companies what they do want—and nothing more—a bank will improve its performance for customers and shareholders alike.

Midsize companies (those that have annual sales from $10 million to $250 million) generate an estimated $20 billion in profits for North American financial institutions every year—about equal to the profits from the large corporate market, though the middle market is, of course, more fragmented. The current approach of the banks is based on their historic practice of making loan officers the main point of contact for midsize companies. Banks are now attempting to capture a larger share of this business, but they haven’t changed that fundamental focus on loans. This means that, in addition to pushing credit, some...