Why banks should provide payment services to SMBs

With fintech disruptors changing the payments landscape, financial institutions must modernize their offerings or get left behind.

Banks and credit unions find themselves in a fight to stay relevant in a digital-first world. But by offering modern digital payments services, they can support the growth of small businesses and safeguard their client relationships.

When fintech players like Square and Stripe entered the game around a decade ago, SMBs still relied on banks and credit unions for their banking. Yet these modern payments systems provided much more than transaction technology — they also became critical hubs of sales and product data. Small businesses and merchant clients rely on this information to make business and operational decisions, and the disrupters began to use this data to assess the health of their clients and make lending decisions.

Free from many of the regulations that govern banks and credit unions, nontraditional fintech players have created more agile solutions, grounded in a strong user experience and design-first principles. The result is streamlined consumer experiences for SMBs, while banks have lagged behind in modernizing their services.

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If banks and credit unions don’t innovate their offerings to include a digital-first payments processing service, their SMB clients will likely look elsewhere for providers who can better support their growth and digitization. Without the security of these client relationships, banks and credit unions will struggle to remain relevant.

To compete with the fintechs, banks and credit unions must modernize to provide seamless solutions that address SMB pain points. This means upgrading tech stacks to include consumable payments technology to create a frictionless, one-stop digital banking and payments processing suite with more capabilities than what fintech competitors offer.

Given high regulatory burdens and technology challenges, this can feel daunting, even for large and mid-sized banks. Along with their in-house talent, financial institutions have the option of seeking out external partners to help innovative solutions.

In safeguarding the bank-client relationship, banks and credit unions can provide small business owners and merchants the solutions they need to compete with larger enterprises. An all-in-one system that combines payments processing, banking, lending and sales data is not only easier on SMBs and their customers — it also enables banks to make smarter decisions.

Payments processing technology gives banks and credit unions access to sales and product data they wouldn’t have otherwise, and this data is much more useful than a credit score when it comes to making lending decisions. With this detailed view of the health of an SMB’s finances, banks and credit unions can ensure they aren’t passing up good credit risks and further support small businesses and merchants they serve.

An easily consumable, all-encompassing payments solution also enables banks and credit unions to offer this service proactively to new SMB clients, alleviating the initial frustration and confusion that comes with finding point-of-sale and e-commerce solutions, managing technical infrastructure and integrating sales apps. This creates foundational, lasting relationships with SMBs from the start, and sets banks and credit unions up as the go-to resource in fulfilling clients’ digitization goals.

Small businesses and merchants are working hard to accelerate their digital transformations, and they need the latest payments technology to keep up. By offering seamless payments services to their SMB clients, financial institutions can help accelerate their digitization efforts and give them the edge they need to stay viable against their competitors.

Fintech disruptors will continue to threaten the bank-client relationship, and the best defense is integrating a complete omni-channel payments solution into their suite of offerings.

With a modernized digital tech stack and greater focus on safeguarding and growing their SMB client base, banks and credit unions don’t have to fear going obsolete. Instead, institutions can secure staying power in a constantly evolving marketplace and ensure the SMBs they serve that these enterprises can count on their bank to provide the latest digital banking solutions.

Vijay Sondhi is CEO at NMI