While banks have invested heavily in consumer finance tools, and leading banks have sophisticated apps and portals for large corporations, the small and medium enterprise (SME) has “been left on the back burner,” according to a recent study by Javelin Strategy & Research.
“In general, small business banking has been left behind in this digital banking revolution,” said Ian Benton, a senior analyst at Javelin. “On the consumer side you have seen a ton of development, where it has become more personal with device-driven tools like Erica (a digital assistant) at BoA. The user experience has gotten really good at the top 25, and we have seen quite a bit of development on the corporate side.”
Meanwhile, small business apps have generally been built out from a consumer banking platform with a few features, but not necessarily designed with small business in mind.
“When it comes to payments, small businesses have pretty unique needs, and I think faster payments will provide a lot for them,” Benton said.
He added, “Businesses already use ACH to make payments and could see benefits from faster payments and tools to manage their finances, such as cash flow analysis, expense management for employees, and the ability to create invoices.”
Some vendors, like Quickbooks, have stepped in. That creates a threat for banks, if fintechs edge them out by becoming SMEs’ primary business relationship.
Banks should try to look through the customer’s lens. For example, a lot of SMEs keep their business and personal checking at the same bank and would like to be able to see both at once through a single view.
“For banks that are currently RTP users, there will be a window of a few years during which they will be the only game in town for businesses seeking real-time payments,” the report said, adding that 70% of business owners are willing to pay for real-time payments.
Benton said faster payments could come through a variety of providers besides the real-time TCH network and FedNow, which isn’t expected to go live before 2023. Banks could use Visa or Mastercard. Venmo already offers business payments, and Zelle is expected to expand its payments from B2C to let consumers pay businesses once improved risk controls are in place.
Banking Circle, a global financial utility serving fintechs and banks that was spun off from Saxo Bank last year, recently issued a report stating the SME problem is European as well.
Regulation is part of the problem. Banks are not set up to evaluate the risks of SMEs, so they steer away.
“The largest incumbent banks are yet to embrace new technology sufficiently to balance risks and innovation and service the majority of the SME sector effectively,” the Banking Circle report said.
A payable fintech firm sees huge demand from SMEs for software to onboard suppliers, collect tax IDs, process invoices, make global payments and reconcile, said the report, suggesting financial inclusion should extend to SMEs.