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Making banks relevant to small business customers


Although small businesses have generated two-thirds of the economic growth in the United States since 1995, few financial institutions offer products or services built specifically to meet the needs of this vast and potentially profitable segment.

This lack of relevant offerings hurts both small businesses and financial institutions. Small business owners have adapted to the lack of attention by running their businesses through personal accounts, non-financial institutions or simply not using the tools that they should. Banks, therefore, have missed a significant opportunity to grow revenue by providing these organizations the services they want.

A recent report by Aite Group indicated that more than three-quarters of U.S.-based businesses generating less than $20 million in annual revenue manage their own finances without the help of an internal financial controller or accountant on staff. These small business owners lack financial expertise and struggle to create essential tools, such as financial statements and cash flow forecasts.

This is no surprise, given that most small businesses are run by entrepreneurs. These individuals, though specialists in their fields, are rarely financial experts. They did not start their businesses wanting to spend more time on spreadsheets than their customers. Given the limit of time and financial expertise, the analytics and forecasting done by small business owners likely contain errors. And, since 80% of these owners depend on non-financial institutions for tracking their finances, according to Aite, they lack the access to advice that could help them identify and mitigate risk.

Savvy banks have an opportunity to help small businesses and access a market where competition is not widespread. To do so, they must tailor services for small businesses, instead of trying to convince them to use “dumbed down” versions of commercial banking products. Banks that can serve these businesses appropriately will find a great deal of new business opportunities appear from amongst their target markets.

Here are three key areas, where banks can help their small business customers:

Providing richer, more actionable data. Too many banks simply provide small businesses with large amounts of data in a static report format, forcing the owners to sift through this data dump to reorganize and repopulate their own reports. This, obviously, adds to – rather than alleviates – the time constraints these owners face. In addition, too many institutions require small business owners to navigate between screens and bank portals to gain access to the desired data. Even if these customers take the time to perform these steps, there is no guarantee they will be able to use the end result to help ensure their businesses’ financial health.

Banks have an opportunity to meet these needs with services they may be able to monetize. According to the Aite study, more than half of businesses lacking financial expertise would be interested in having their banks offer automatically generated financial statements, and nearly 60% would be likely to use expense categorization if their bank offered it. The survey also found that more than half of small businesses would like the ability to easily switch between personal and business accounts at the same bank without having the transaction and payment details combined.

Simplifying processes, especially around payments. Financial institutions are undergoing a transformation around the money movement services they offer to consumers through digital channels. For example, instead of expecting consumers to know how money moves, innovative banks are offering them a way to move money that is similar to shipping a package via UPS. The customer only needs to know where to send the money, how much to send and when the funds need to get there. It’s not necessary for the consumer to understand confusing acronyms, such as P2P, A2A, ACH, etc.

Small business owners should enjoy the same simplicity when moving money. Not only does this make moving money easier for the owner, but allows financial institutions offering this type of money movement approach to control the user interface and associated data. In addition, protecting the control of the data allows the institutions to offer value-added services such as predictive cash flow and least-cost routing.

Banks should also apply this school of thought to lending practices. At most banks today, small business lending is time consuming, expensive and largely manual. If banks fail to make this process quicker and more convenient, these businesses will inevitably look to alternative lenders and other options. Small business lending must be fast, easy and profitable.

Adding robust entitlement capabilities. Entitlements, or the capability for small business owners to control what information and functions each digital user can access, are common, essential features within cash management solutions. However, these solutions, even in scaled back forms, feature user interfaces that are often confusing to many small business owners. Nearly half of small business owners have multiple people that need to access the company’s business accounts via digital channels. Without the ability to assign what information can be viewed by each user, as well as the types of transactions and dollar thresholds they are permitted to perform, the business faces considerable risks.

Mr. Vipond is CEO of Omaha, Neb.-based D3 Banking. He can be reached at [email protected].