Part 2: Small Business Digital Banking. Traditional Banks vs. Fintechs and the Jobs to be Done
As I alluded to in my last blog, small business advertisements across banks and credit unions showcase a universal theme centered around dollar amounts and transaction volumes. After 30 years in the banking industry, I can confirm this obsession among bankers - it’s ingrained in them, from how third-party licenses are priced to counting seats, their careers involve managing dollars and volumes.
Another common theme among bankers is settling for ‘less than ideal’ products and tools based on affordability and availability. I witnessed this upon starting my first bank job in 1980, until I left in 2010. The tools available gradually improved over time, but didn’t keep pace with the increased complexity and time constraints around the jobs to be done.
Negatively impacting the products and markets they serve, products that are not quite suited to the job and priced by volume leave small- to mid-sized businesses (SMBs) frustrated. Feeling their banking partners don’t understand their needs, SMBs look elsewhere for solutions granting them freedom to run their businesses, create products, and provide services.
These weaknesses are where fintechs found a prime opportunity to fill the gap, stepping up to provide the right tools and accommodate the unique needs of business owners. Tired of the status quo and settling for lesser, ineffective products, fintechs set out to build products and services with a fresh perspective and a different vantage point, focusing on the jobs to be done.
This also exposed service gaps at banks and credit unions who offered products with access to ACH origination. Where banks and credit unions may offer a laundry list of features, fintechs have better assessed the market needs and built streamlined solutions, such as payroll processing, bill payment and bill collection.
When COVID-19 shutdowns started, congress passed the Paycheck Protection Program (PPP) to provide $670 billion to banks and credit unions for dispersal to eligible small businesses. One of the biggest obstacles SMBs faced was a lack of automated tools to gather information needed for the loan application.1 Either they didn’t have automated solutions for accounting, payroll, and invoice purposes, or they lacked the connectivity between platforms to seamlessly exchange data.
Community financial institutions can make a difference by marketing to younger, more tech-savvy generations of small business owners, and closing the fintech gap by taking a fresh look at products and services - not in terms of dollar thresholds and volumes, but instead in how they solve the jobs to be done.
A recent article from 11:FS breaks these jobs into 4 main categories:
- Setting up the business
- Reconciling prior activity
- Managing day-to-day finances
- Planning for the future
One key element of managing day-to-day finances is the ability to track and manage cash flow. According to the Bureau of Labor, 20% of small businesses fail in the first year, and 82% attribute this failure to problems with cash flow, in a separate US bank study.2
What can you do to help your small businesses improve cash flow issues? Providing the means to generate invoices on-the-go, along with integration and reporting features to track and proactively reduce their average collection rate, are a few ways to mind the gap. Financial institutions who seek true partnerships with their SMBs by identifying short-term financing needs and providing insights on improving cash flow management, are well-poised to address the greater, unique challenges small businesses face.
The average small business owner spends close to 20 hours a week handling accounting and payment duties. What if you could provide a platform to integrate solutions addressing their biggest pain points, so they could spend less time on financial tasks and more time doing what they love?
A recent Cornerstone survey found that of the nearly 1,300 small businesses surveyed, only 6% reported handling their accounting and payment services through their banks and credit unions. It’s unknown if these services are what drew the SMB to their financial institution, but it’s clear there’s a market interest. Of the nearly 80% of respondents looking for a new banking relationship in the coming year, more than 80% expressed an interest in obtaining these solutions through their bank or credit union. The numbers speak for themselves.
What may surprise you is that the percentages increased dramatically as their revenues increased:
- Of the nearly 200 SMBs with revenues under $250K, 56% were interested in obtaining these services from their financial institutions.
- Of the nearly 300 SMBs with revenues between $1-$5 million, 71% were interested.
- Of the just over 100 SMBs with more than $20+ million annually, 80% were interested.
In what Cornerstone described as a $370 billion opportunity, providing targeted solutions for SMBs benefit the FI by attracting new account holders, improving existing relationships and boosting revenue.3 If you’re one of the 10K+ community institutions looking to aid the small businesses in your communities, it’s time to turn the glass around and review your offerings in terms of how they solve the jobs to be done.
With NXT, Alogent’s secure, flexible and customizable digital banking platform, community institutions offer consumer and business banking under the same umbrella. Gain tangible ways to differentiate your credit union with scalable, intuitive functionality critical to your business banking services, including branding and marketing, automated payments functionality, fraud controls, predictive analytics, reporting, and more. Click here to learn more today.
>> Learn more about NXT and its business banking capabilities.