SMALL BUSINESS BANKING: A $56.9 BILLION OPPORTUNITY FOR THE TAKING

Transcription

1 SMALL BUSINESS BANKING: A $56.9 BILLION OPPORTUNITY FOR THE TAKING

2 EXECUTIVE SUMMARY Small businesses are the hottest under-served market segment, offering outstanding revenue potential for financial institutions. Historically, small businesses have been overlooked as their needs more closely aligned with consumers, so retail banking services seemed to fit their needs. However, now that small businesses have evolved into tech-savvy customers expecting more product sophistication for which they will pay, they are a segment for opportunity. This revenue opportunity has not gone unnoticed as non-bank offerings are on the rise to attract these customers. To compete, financial institutions are emphasizing their unique capabilities for security, broad solutions and the ability to serve as the single source provider for all financial needs a small business would want. 1 WHAT IS A SMALL BUSINESS REALLY? The first hurdle many financial institutions face when looking to better serve small businesses is figuring out exactly what a small business is and how to create value that resonates with this segment. Is it more like a high-end consumer? A low-end commercial business? Something else? The U.S. Small Business Administration (SBA) uses a fairly generic definition of a small business, capping it at businesses with 500 employees or less (according to this definition, 99% of U.S. businesses are small). The SBA also says the 28 million small businesses in the U.S. today account for more than half (54%) of all U.S. sales and more than half of all U.S. jobs (55%), proving that small doesn t always mean slight when it comes to contributing to the overall economy. $5 million in sales have the same banking needs as a 30-person business that s brought in just under $5 million in sales for the last eight years? Generalities like this lead many financial institutions to overlook an opportunity in serving this segment. A better way is to take a more in-depth look at some specific small business owners to understand exactly who they are and the banking challenges they face. Financial institutions define small businesses a bit differently. While some do consider the number of employees, the vast majority use revenue for size, with about 75% pegging a small business as one with less than $10 million in revenue and the rest (25%) using $20 million in sales as the threshold. Unfortunately, such general descriptions fail to capture the unique characteristics and banking needs of small businesses. Does a 10-person startup with less than 2 Small Business Banking: A $56.9 Billion Opportunity for the Taking

3 SMALL BUSINESS QUANDRIES: OPPORTUNITIES FOR FINANCIAL INSTITUTIONS SALMA: MEDICAL OFFICE MANAGER Consider Salma, a medical office manager for a suburban dental office. Salma uses everything from a smartphone and ipad to a laptop/desktop throughout her busy day. She is responsible for enabling all of her patients check and credit card payments, as well as for paying suppliers for ongoing services and deliveries. She oversees employee payroll and wishes she had a good option for implementing direct deposit. In terms of banking services, she currently uses online banking to see current balances, view positive pay exceptions and make electronic payments. Still, she finds most of the financial reports she can access online challenging to work with and difficult to drill down to find the information she needs. For example, she would love to be able to generate reports and views to present to the practice s partners at their monthly status meetings, but sees no easy way to do that currently. What she needs is a clear picture of current cash flow and future spending to address the needs of the business in a timely fashion. ALEX: CUSTOM FURNITURE MAKER Alex, on the other hand, is a one-man show. He handles his furniture making business in his spare time, but is itching to quit his day job and get to the next level. Right now, however, he has little time to spare and just wants to be able to manage his business quickly and efficiently without getting bogged down in frustrating, administrative-level tasks. In terms of banking services, he s a big fan of anything that shaves off time spent away from building furniture, and since he s an avid smartphone user, he especially appreciates mobile banking and easy-to-use features like remote deposit capture. As he balances his day job, his business and his family, he looks to his bank to provide up-to-the-minute data on where he stands, including checking and savings balances and credit card activity. KEY TAKEAWAYS While both Salma and Alex run small businesses, most financial institutions would have a difficult time fitting them together into the same small business profile. Financial institutions view people like Salma as having more commercial banking needs, while Alex seems to fall on the consumer end of the spectrum. But that kind of categorization is far too bank-focused and misses the big picture within small business. The real common denominator is simplicity. Small businesses don t want to have to think about their banking. They see banking as just one of the many functions they must perform each day. They are constantly being pulled in many directions working with suppliers, serving customers, managing employees and manufacturing/selling their goods. Small businesses need banking to be as simple and efficient as possible so that they can use it as a tool to gain better control and flexibility to better run their businesses. While it may be obvious that each small business is unique with its own set of banking requirements and expectations, what s less clear is how much time, investment and infrastructure financial institutions should put toward serving these varied small businesses. In the end, few financial institutions invest enough, primarily because they remain blinded by the three myths of small business banking. 3

4 2 THE THREE MYTHS OF SMALL BUSINESS BANKING MYTH 1: THEY RE FINE Many financial institutions don t yet realize the extent of dissatisfaction beginning to blanket their small business accounts. Like every business today, small businesses are being pushed into the digital world, or in most cases, they are doing the pushing. Small business owners tool of choice is a smartphone or ipad, and they use it to get business done. Consider how Salma (see page 3) seamlessly adds Facebook to the options patients have for appointment reminders, or how Alex engages with marketing and advertising apps to schedule time-limited coupon deals. Small businesses expect the apps they use including for banking to be quick, feature-rich and easyto-use. They want real-time data, simplicity and consistency across all channels, and if they don t get it, they ll look elsewhere. In fact, small businesses are one of the major customer segments currently propelling the rise of FinTech companies. Rather than struggle with something that doesn t quite fit their needs, small businesses are quick to adopt new technologies that are easy to use and help them run their businesses better. And while small businesses as a whole aren t that vocal, they do tend to vote with their feet when their needs aren t being met. MYTH 2: THEY CAN T (OR WON T) PAY The typical perception of a small business is one that continually operates on the edge, struggling to pay its bills or make payroll not one willing to pay for banking services. But in reality, small businesses do pay their fair share of banking fees. Yes, the majority sign up for basic no-frills banking plans and work hard to avoid fees for low balances or excessive transactions, but they are also realistic about what services they need and how much they cost. They know how their businesses ebb and flow, and when stepping up to a premium service makes sense. They also readily pay for value-adds, when they need them. The numbers don t lie; the average small business customer generates $451 in fees per year. Small businesses don t sit still. When traditional financial institutions can t (or won t) offer what small businesses need, they have no trouble signing on with and paying a FinTech that can. MYTH 3: THEY RE NOT WORTH IT While some financial institutions realize small businesses have varied needs and challenges and that they can tailor their services to help, they still sometimes write off small businesses as too small to bother with. How much difference can small businesses (and their average of $451 in fee payments per year) really make to a financial institution s bottom line? A lot actually. Barlow Research estimates that small businesses represent a $56.9 billion annual revenue opportunity for financial institutions. How? Millions of small business are paying fees to not only their banks, but also to FinTechs. In fact, a recent Aite study indicated that 72% of small business are paying for banking services. Let s consider a bank looking to serve their 100,000 small business customers. Assuming a somewhat conservative 25% adoption rate of customers paying $451 in fees per year would generate over $11 million per year. If we use fee income numbers from Aite s monetizing small business research, which states that 18% of small business pay over $100 per month, then we re looking at over $21.6 million per year. Regardless of which numbers and estimates you prefer, it s clear that small businesses represent a very big banking opportunity to banks that take the time to recognize it. BARLOW RESEARCH FINDS 35% OF SMALL BUSINESS CLIENTS SAY THEY WILL LEAVE THEIR CURRENT BANK PROVIDER FOR A BETTER DIGITAL BANKING OFFERING. 3 RISK SEGMENTATION The small business opportunity is real and it can be lucrative, especially for forward-thinking financial institutions that, much like today s FinTechs, focus on offering the value-added services that truly resonate with small business customers Instead of considering the small business segment as one size fits all, financial 4

5 institutions need to uncover and then leverage various small business personas like Salma and Alex. Then, they can categorize the features each persona finds most important and tailor their service packages to suit. Most importantly, financial institutions need to break down their siloed services into quick, easy-touse applications from which small business users can pick and choose as their business grows and their needs change. Financial institutions should also look to offer a freetail package. Start small business customers off with a basic set of must-have features (similar to what they get at no cost on the consumer online banking) to get them using the service and realizing your capabilities, but then offer higher-level value-added services when they are ready and at an additional charge. Finally, financial institutions need to be the solution to the small business banking services dilemma provide the right digital banking platform designed to offer business customers the best possible customer experience for their needs and business issues. A winwin for both parties. Contact ACI Worldwide to learn about how ACI Universal Online Banker will enable you to generate revenue from your small business segment. 5

6 ACI Worldwide, the Universal Payments (UP) company, powers electronic payments for more than 5,100 organizations around the world. More than 1,000 of the largest financial institutions and intermediaries, as well as thousands of global merchants, rely on ACI to execute $14 trillion each day in payments and securities. In addition, myriad organizations utilize our electronic bill presentment and payment services. Through our comprehensive suite of software solutions delivered on customers premises or through ACI s private cloud, we provide real-time, immediate payments capabilities and enable the industry s most complete omni-channel payments experience. LEARN MORE WWW CONTACT@ACIWORLDWIDE.COM Americas Asia Pacific Europe, Middle East, Africa +44 (0) Copyright ACI Worldwide, Inc ACI, ACI Worldwide, ACI Payment Systems, the ACI logo, ACI Universal Payments, UP, the UP logo, ReD, PAY.ON and all ACI product names are trademarks or registered trademarks of ACI Worldwide, Inc., or one of its subsidiaries, in the United States, other countries or both. Other parties trademarks referenced are the property of their respective owners. ATL