Lauri Giesen
Lauri Giesen Dec 9, 2019

Winning the SMB deposit game: How technology leads the charge

"Technology will transform bank services and remove many of the barriers that have plagued lending to small businesses,” says Karen Mills, a senior fellow at Harvard Business School and former head of the Small Business Administration for the Obama administration.

And now, the billion-dollar-plus question. As in: How does a $1.4 billion bank based in a Wisconsin city of less than 40,0000 develop small business accounts in nearly all 50 states?

You’ll need technology to find the answer—literally. Then, start thinking small.

Yes, literally. 

“Small businesses have provided a major growth engine for us,” says Kathy Strasser, an executive vice president with Wausau, Wisconsin-based River Valley Bank. She’s also known by another title: COO of River Valley’s online institution, IncredibleBank. 

“This is where we’ve seen the biggest growth in new accounts in terms of dollar volume,” Strasser says. And when you make your presence felt online to the America’s underserved sector, it gives you a chance to live up to a moniker like Incredible. Call it treatment that gives small businesses a lift—which you’re definitely hinting at when your logo is the silhouette of a barbell-thrusting strongman.

Still, the tasks that accompany can require heavy lifting. Think about how hard it can get for businesses outside the bank’s traditional core markets to deposit and sign documents hundreds or thousands of miles away from, say, the River Valley branch on 3210 E. Main St. in Merrill, Wisconsin, population 9,161.

Extending credit becomes difficult for lending officers as well. How do you evaluate the risk and credit worthiness of a community business in a community that’s unfamiliar?

On the deposit side, remote deposit capture has proven a godsend for businesses from across the nation. Where it makes sense, they can utilize scanners to electronically deposit checks and in many cases, particularly with mobile businesses, smartphone or tablet snapshots work better.

River Valley has found a way around a common problem banks face in promoting mobile deposit to small businesses: the limits on deposit size or numbers of checks processed in one day. Among Incredible Bank’s competitors, the limits imposed on consumers simply don’t make sense for businesses.

“We offer more flexibility,” says Strasser. “We know our businesses and the types of transactions they’re likely to make. We can customize the limit based on what works for a particular customer.”

And with DocuSign technology, customers can digitally endorse crucial paperwork. “At first some customers were leery,” Strasser says. “But most businesses come around once they understand how it works.”

A 'latent emerging demand'


While River Valley uses fintech to land new small business accounts, many other banks use it more to preserve existing accounts against outside tech companies developing financial services for small businesses. 

“The biggest concern for most community banks is retaining small business accounts rather than pursing new markets,” says Peter Wannemacher, principal analyst for Cambridge, Massachusetts-based Forrester Research.

It’s not so much the obstacles community banks once faced serving small businesses. “They’re becoming more aware of the latent emerging demand for technology-based services from their customers,” says
Wannemacher. “The disruption in the banking industry is even greater with small businesses than it is on the consumer side of banking.”

And technology could give community banks a badly needed edge to compete with fintechs making forays into financial services.

“Technology will transform bank services and remove many of the barriers that have plagued lending to small businesses,” says Karen Mills, a senior fellow at Harvard Business School and former head of the Small Business Administration for the Obama administration. Mills is also author of “Fintech, Small Business &the American Dream.”

Both Mills and Wannemacher point to application programming interfaces (APIs) as important in gathering the information that will propel small business banking forward. It’s a thorny, jargony acronym, but breaks down this way: “apps” are the “A” in API, which act as the glue to connect multiple systems into one efficient platform. You can think of the ride sharing application Lyft, which uses APIs to synchronize maps, payments and texting in one application. 

Once the APIs gather the necessary information, artificial intelligence systems can compare the credit file of a particular business to similar businesses in the community to determine risk, Mills says.

“All businesses are different so it’s hard to compare the credit file of a funeral home to a restaurant or to a parts manufacturer,” Mills says, “But there are systems out there that can provide you with comparison systems for small businesses. If you have data on 1,000 dry cleaners, you can tell if the 1,001st dry cleaner is a good risk.”

That will be particularly important to community banks looking to expand their existing footprint, either nationally or in adjacent markets.

Lending's need for speed


Nowhere is the potential for technology greater than in lending. “The time it takes for small businesses to apply for loans, get approved and then have the cash they need to pay their vendors and employees has been considerable,” Wannemacher says.

With tech companies such as Intuit’s QuickBooks Capital offering small businesses loans in short time frames, community banks must respond, he says.

Adding to the complexity is that banks find it tough to evaluate businesses’ credit worthiness, especially compared to consumers. “It’s difficult to see inside small businesses to get all the data points that are needed,” Mills says. “Consumers are much easier to evaluate.”

To get the best results, community banks should work with outside technology vendors that complement their existing services. Community banks that link to business-friendly services as QuickBooks and Xero will find themselves more competitive, Wannemacher says.

Person-to-person payment services such as Zelle or connections to Square and PayPal give a bank a leg
up on the competition, he adds. 

“Community banks aren’t trying to rule the world,” Wannemacher notes. “They’re trying to sustain and maintain their role in serving their communities. They can integrate to fintechs without worrying about competing with them because they have the customer trust factor to their advantage.”

But unlike big banks, many community institutions will need to rely on their core processors to deliver the tech links they need. Mills argues that has not happened until just recently.

“The core processors received a wake-up call just in the last six months,” she says. “Most of them now are in various stages of developing services that either work with existing fintechs or work around them.”

As for how all this will play out—and whether more banks will follow in River Valley’s footsteps—that’s a billion-dollar question for another time.


Lauri Giesen has spent more than 25 years writing about banking technology and payments for numerous business and financial publications. In the 1990s, she founded and edited Financial Service Online, a magazine covering Internet-based forays into banking and investment services.

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