4 Threats to Small Business Banking and How to Defuse Them

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1 EBOOK 4 Threats to Small Business Banking and How to Defuse Them Gaps in Bank Offerings are Resulting in Small Businesses Going Elsewhere. Find Out How to Turn This Trend Around and Create More Rewarding Small Business Relationships. 1

2 Table of Contents Introduction 3 4 Threats To Small Business Banking 1st Threat: Inability To Project Cash Flow 4 2nd Threat: Inability To See All Accounts At Once 6 3rd Threat: Lack of Insightful Financial Tools 8 4th Threat: Lack of Access 10 What s a Bank to Do? 12 Response #1: Build It 14 Response #2: Buy It 15 A Third And Smarter Response 16 The Envestnet Yodlee Business Financial Solutions 18 Conclusion Envestnet Yodlee. All rights reserved. Technology protected by one or more U.S. Patents or Patents Pending. Use subject to license terms. May include materials developed by third parties. Yodlee and the Yodlee Logo are trademarks or registered trademarks of Envestnet Yodlee in the U.S. and other countries. All other trademarks mentioned in this document or website are the property of their respective owners.

3 Introduction Small businesses are a critical growth driver behind the economy. And while this important business segment struggles with many of the same issues as big businesses, there are far fewer resources available to help them achieve viability and profitability. Banks are in a key position to help their small business customers succeed. But banks have typically been slow to offer the digital financial tools their customers are looking for. In this ebook, we ll take a closer look at the four threats to business banking and explore how banks can meet these threats head-on to better serve their small business customers and profit from these extremely valuable relationships. Up to one-third of small businesses are at risk to shift to non-bank solutions because their bank is not offering needed technology advances. 1 1 Christine Barry, Banking on Small-Business Needs, Aité Group, May

4 First Threat: Inability To Project Cash Flow??

5 Cash is king for small business owners and managing cash flow is critical to their success. Cash flow projections give small businesses real-time insights into their financial health, allowing them to make more informed spending and investing decisions. When small business owners can t get a complete and accurate picture of forecasted cash flows from their bank s site, they are at risk to go elsewhere, like to rapidly emerging third party applications that offer these insights and analytics. Only 20 percent of businesses manage their cash using their bank s online banking/cash management solution. 2 2 Aité Group Survey of 1,003 Businesses Generating Less Than US$20 million in Revenue, September

6 Second Threat: Inability to See All Accounts At Once

7 One of the main reasons why small businesses don t manage their cash flow on their bank site is because it doesn t offer the much needed consolidated view of account information across multiple accounts. In order to gain visibility into the financial health of their business, it s important that small business customers be able to view and manage all their accounts in one place and integrate with their preferred accounting software. And when banks can t give them a consolidated view of their finances, they are now reacting by exploring the rapidly emerging non-bank providers that can service those needs. 17 percent of small businesses don t manage their cash using their bank s online banking solution because it doesn t enable a consolidated view of account information across multiple accounts. 3 3 Aité Group Survey of 1,003 Businesses Generating Less Than US$20 million in Revenue, September

8 Third Threat: Lack of Insightful Financial Tools

9 While small business customers find themselves increasingly in need of more sophisticated online bankingcapabilities, many banks aren t offering such advanced services. Key products and services that small businesses are looking for include business-critical tools that allow them to forecast cash flow, make online payments, collect on money owed, submit invoices electronically, and enable a consolidated view of account information across multiple accounts. While third party application developers are making such tools available, many banks typically don t offer these tools. They increasing are doing so at their own risk. With an estimated 15 percent of small businesses likely to switch financial institutions over the next two years and 30 percent saying they would take their accounts to a new financial institution if a more complete online product offering were available, 4 banks must work harder to evolve their product offerings, and re-establish their trusted advisor relationship or face the very real and growing threat of disintermediation from nonbank service providers. Many small businesses would switch institutions for a more complete product offering, such as accounts payable and receivable tools, direct integration with accounting software, and cash-flow forecasting capabilities. 5 4 Christine Barry, Banking on Small-Business Needs, Aité Group, May Aité Group Survey of 1,003 Businesses Generating Less Than US$20 million in Revenue, September

10 Fourth Threat: Lack of Access???????

11 Small business customers also want to be able to manage their finances from anywhere, anytime. Rather than visit the branch, they prefer to conduct bank transactions via an online channel. For banks, having an advanced small business online banking platform with robust functionality is critical to succeed with their small business customers. And as more and more small business banking customers access their primary bank via a mobile device like tablet or smartphone, it s important to them that their institution be tech-savvy enough to offer an engaging mobile experience. 71 percent of small businesses prefer to interact with their bank through an online channel over a computer, smartphone or tablet. 6 6 Aité Group Survey of 1,003 Businesses Generating Less Than US$20 million in Revenue, September

12 What s a Bank To Do??

13 As a quick response to small business banking threats, many banks are addressing this customer s banking needs with retail banking solutions. This has resulted in major gaps in bank solution portfolios for small businesses, creating vulnerabilities for banks and opportunities for non-banks. While banks want the patronage of the small business community, developing the tools for these unique customers is often a challenge. Traditionally, banks have viewed technology initiatives through a bi-partisan lens frequently represented as build it or buy it. Let s take a deeper dive into both of these options. 13

14 Response #1: Build It For financial institutions to build many of the online tools that small businesses are seeking, it would require them to maintain an in-house Information Technology department capable of building and deploying enterprise-level software. And even if they did go to the expense of building such technology and managing it across different platforms, it s difficult, if not impossible, for banks to provide critical small business offerings like account aggregation functionality. Without access to core solutions such as aggregated account data, small businesses would continue to seek out third party providers who can deliver it. Copyright 2016 Envestnet Yodlee. All rights reserved. 14

15 Response #2: Buy It For many banks, buying a new digital technology platform is the more interesting option. Leading technology tends to be expensive, though, and it rarely works well with legacy bank systems. And replacing legacy bank systems because they don t meet today s changing needs is prohibitively expensive. Additionally, once the new system is purchased and deployed, it tends to look and feel much like what software competitors are using, often because they bought the same platform. 15

16 A Third And Smarter Response 3 16

17 Neither the build nor buy options work for the majority of banks, many of which are also struggling with their latest retail consumer banking technology solutions. There is a third option, and many financial institutions are already taking advantage of this digital financial solution scenario. Instead of developing the software on their own or replacing (or rendering obsolete) their existing technology platforms, many financial institutions are leveraging technology solutions that work with and enhance their existing online offerings. Key Recommendations Build out your digital financial product to better meet small business pain points failing to do so creates opportunities for competitors Offer new services to differentiate your institution in the market Seek out technology partners to help you meet new market needs through a tightly integrated offering that works seamlessly with existing online and mobile technologies 17

18 Envestnet Yodlee Business Financial Solutions 18

19 With the Envestnet Yodlee Business Financial Solutions, financial institutions have access to digital financial management tools that work directly with their existing online and mobile banking portals to help small business customers organize and better manage their companies finances. As one of the most comprehensive collections of digital financial products and services for small businesses, the Envestnet Yodlee solution offers tools that address cash flow, transactions, income, analysis, expense management, payroll, invoicing, international money transfer, and more. This solution allows banks to enable innovation and seamlessly enhance their existing online offerings that meet the growing needs of their small business customers. As a result, banks are able to remain competitive, maintain their differentiation in the marketplace, and provide the technology their small business customers require in an affordable manner. Banks have an advantage over technology providers that is not being leveraged, as small businesses would prefer to get nontraditional, technology-based banking products from their bank. 7 7 Aité Group Survey of 1,003 Businesses Generating Less Than US$20 million in Revenue, September

20 Conclusion With an estimated 15 percent of small businesses likely to switch financial institutions over the next two years, banks need to protect themselves against the growing threat of disintermediation from non-banking technology providers, evolve their product offerings, and re-establish their trusted advisor relationship. This would solidify the financial institution as the depository of choice, give banks the power to retain their small business customers and create cross-sell and upsell opportunities. Yodlee Business Financial Solutions works with a bank s existing online offering to deliver much needed innovation and unrivaled capabilities to financial institutions. How can I learn more? Download the white paper: The Threat to Small Business Banking Watch the webinar: Delivering Agile Business Banking Solutions in a Disruptive Environment Download the data sheet: Envestnet Yodlee Business Financial Solutions Download the solution brief Opportunity Abounds for Small Business Financial App Developers with Envestnet Yodlee APIs For more information, visit: 20

21 Global Headquarters: 3600 Bridge Parkway, Suite 200, Redwood City, CA T: , Envestnet Yodlee. All rights reserved. Technology protected by one or more U.S. Patents or Patents Pending. Use subject to license terms. May include materials developed by third parties. Yodlee and the Yodlee Logo are trademarks or registered trademarks of Envestnet Yodlee in the U.S. and other countries. All other trademarks mentioned in this document or website are the property of their respective owners. Yodlee /16