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The Big Opportunities in Serving Small Business

Financial institutions are finally starting to take small-business customers seriously. Their historical preference for branches and larger financial wallets makes the segment a key battleground for the regional banks. And there are significant needs to serve these clients as they embrace a more digital world.

Historically, many banks tended to consider small-business clients as a sub-set of their consumer customers, with little attention paid to what owners and entrepreneurs actually need from a financial institution. That is starting to change, partly spurred by the wave of new entrants zeroing in on the segment and the opportunities that digital channels create.

There is a long way to go. Curinos sees four key areas of digital improvements that can make a difference in the small-business efforts: International capabilities, speed of lending, onboarding and digital engagement.

Digital Progress To Date

To be sure, progress is being made in the way that banks interact digitally with small-business clients. Platform design has been a key area of focus, with efforts being made to improve the delivery of information and create a simple customer journey.

There has been an influx of dashboards that easily and clearly show insights from account or transaction feeds on one interface. Similar with retail customers, the small-business account holder can see accounts and balances, transaction fees and spending data. Providers are also improving the look of the interface, introducing merchant logos and colors that discern between incoming and outgoing transactions.

Functionality has also been a recent area of significant change. Small-business customers can often now categorize each transaction into spending buckets. Banks are also creating receipt management and capture tools to identify individual line items that can be separated by personal or business transactions. And payments are becoming more sophisticated so that a client can easily assess payment options (and associated fees) and identify if the payment is going to a business or a user.

Like with retail customers, banks are also synchronizing digital and branch channels so that the small-business customers can book branch appointments on the mobile app or web platform. The more advanced institutions are also helping customers discern whether their need can be met online or whether it needs to be solved in a branch.

But despite the progress, small-business customers still have many unmet needs that banks can capitalize on to gain advantage. (See Figure 1.)

Figure 1: Services Provided to Small Businesses

International Business

Even the smallest of small-business customers in today’s world have international customers and vendors, especially those that are engaged in e-commerce. As a result, they have increasingly complex international cash flows that may require products and services that historically have only been available for larger clients. They may need flexibility in payment and checkout options, especially in local currencies so that they remain competitive. They may also need to pay suppliers in advance and in their preferred currency, which may require faster payment processing. This may require multiple currency accounts for cross-border transactions, leading to a bigger need for cash flow forecasting. While this may seem obvious, many traditional providers haven’t addressed these needs, opening the door to fintechs. And the small businesses, which may benefit from basic foreign-exchange derivatives, aren’t waiting around for traditional banks to catch up.

Liquidity

Rising rates and economic uncertainty mean that small-business clients may not have a long lens into their liquidity needs. They may need liquidity quickly to take advantage of a sudden expansion opportunity or support the balance sheet in the event of an unexpected cash crunch. In both cases, they may be willing to pay a slightly higher interest rate in exchange for that quick access to liquidity.

Banks have a much broader set of data on these customers than specialty lenders. Transactional deposit data is a solid indicator of the future health of a business and can help banks determine which customers to target and what type of lending support they might need. Does the data indicate a potential cash flow crunch or shortfall? Can the bank offer them a proactive solution — maybe before the client even realizes that it will be needed? Deposit behavior and transaction behavior can also be critical when a financial provider assesses its own credit buy box.

Fintechs often have partial views of this data, but banks often lag fintechs in delivering on small business needs. As with other customers, small-business clients will remember which institution was there to help them in tough times.

Onboarding

Onboarding is low-hanging fruit when it comes to small business. As in the consumer arena, there is a difference in account quality (and funding) for accounts that are opened digitally versus in a branch. And it’s a massive gap — as much as 70% for some institutions. This is yet another area where fintechs and other new entrants are making progress. Banks need to remember that small-business customers are coming to the institution with a need, but they may not know what the best product is to meet that need. Account-selection tools can help the business owner navigate the choices by inputting key features about the business, which helps funnel them into the application stage. Other opportunities to improve the onboarding experience include the ability to upload business documents and do what is needed to set up the account. Banks can pull customers into the process by helping them to assess their needs. Does the business need employee cards? Who has permission to access the account? Does the client immediately need the ability to make instant transfers and virtual cards? The trick is to engage the customer immediately so that they are already using the account by the time the physical card arrives.

Digital Engagement

Communication and engagement often tend to drop off once the account is funded. It is up to the provider to convince the small-business customers to get on the platform and use the digital solutions and services.

Like all customers, small-business clients need support. And that support should be available online as much as it is available in the branch. Today, there’s often no real-time support available for users. There may be a phone number to call or some tips that might vaguely address a question. But actual real-time support where the small business can connect to a bank representative is often lacking. Indeed, many typical issues — especially when it comes to online verification — push the customer offline and into a branch. Does that really help a customer?

It is essential to engage the small-business customer from the start. Speak their language. Seek feedback. What are their common problems and what tools do you offer that address them? They don’t all have the same problems, so look at their behavior and then show them that you have the tools to help with budgets, spending and cash flow predictions.

Banks are finally considering small-business customers as a truly separate group, but the progress seen so far is really just the tip of the iceberg. Small-business customers want and need help. It is only natural that their financial institution provides it. After all, establishing a deep relationship will pay off as the business grows.

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