Payments Views


The Dawn of a New Era for Small Biz Banking? [Dispatch from NACHA Payments 2012]

I was at NACHA’s annual payments conference last week and the most interesting things I heard and saw had to do with small business banking and payments, a long suffering, underserved segment of the market. There’ve been glimmers of hope for small business off and on over the years but I haven’t witnessed a groundswell of interest or observed this many developments simultaneously.

Small businesses are traditionally ill served because the consumer platform is inadequate and treasury management solutions are overkill. They are stuck in the middle, with too few features or way too much complexity. This is ironic given that small businesses are a prized, profitable, customer segment – because of the balances they maintain with their banks.  But they have less negotiating leverage, and often pay much higher fees (in addition to those balances) than do large businesses.

Christine Berry at Aite has done some great research on small business dissatisfaction with their banking products (here) and shared highlights at the conference. Over three quarters of small businesses (76%) are dissatisfied with their bank’s offering.

The small business market is vast – 95% of the nearly 28 million businesses in the US have less than 10 employees (78% are sole proprietors and have no employees). They collect approximately 11% of the $21 trillion in B2B business receipts. (Mid-market businesses with 10-99 employees constitute 4% of businesses, and collect 17% of B2B receipts.) *

There is plenty of opportunity to go around. Banks can differentiate by focusing on geographies, on specific industries, on the company maturity (think of Silicon Valley Bank’s focus on technology start-ups), or on business models (e.g. franchises).

Only a handful of payments services vendors focus on the commercial, rather than retail, payment space, and traditionally most of them have focused on large business solutions – wholesale lockbox solutions that turn check payments with multipage lists of accompanying explanation of “what’s this payment for?” into electronic files that can be loaded into receivable systems to close out open invoices, or accounts payable invoice approval workflow and payment capabilities. The enterprise payment space is big and can be lucrative due to the huge volumes, but solutions are increasingly commoditized despite efforts to enhance core payment functionality with value add features. In recent years most of the effort and attention has focused on moving business payments to card products, providing lucrative interchange revenue for issuing banks and addictive rebates to corporate buyers.

Meanwhile, a handful of banks are challenging the status quo, offering thoughtful solutions for small businesses with a hybrid of consumer and treasury features. A couple bank solutions caught my eye at the show last week:

Andrea Smiddy-Talkington of 1st Source Bank, in South Bend, Indiana said that the bank’s bundle of consumer and small business features for entrepreneurs is the “best thing we’ve ever done.” The small business owner gets both business and personal checking accounts and the ability to move funds between the two, a line of credit, fraud monitoring via ACH blocking and “check watch” (positive pay), business bill pay, free ATM access, and remote deposit capture. All for one flat monthly fee.

RBS Citizens’ Julie Menendez observed that small businesses don’t think they are small. Owners have their personal wealth (and egos) tied up in their business, and they certainly don’t feel insignificant. They have distinct needs, and the bank is leveraging features from treasury management and consumer platforms to create a solution catered to businesses with up to $25 million in revenue. The large enterprise account analysis model has been simplified, discounted, and packaged by ACH and wire transaction volume. Positive pay has been unbundled, so that it can be offered without full reconciliation, remote deposit capture is included, and in recognition of the fact that smaller businesses do not have the resources to develop interfaces to meet bank-specifications, the bank offers a data transaction capability. The whole package costs just under $300.

A subset of technology vendors and payment providers that serve both banks and businesses are starting to recognize the small business opportunities and a slew of new solutions are available or in the works. A few highlights:

Last year GTCR acquired and merged Fundtech with BankServ, combining deep cash management expertise with innovative small business product development. At NACHA this week Fundtech’s Danne Buchanan articulated a vision for small business solutions bundling wires, ACH, traditional merchant account, online payment receipt capabilities generating one AR file interface to apply against open receivables in the business’s accounting solution. The idea is to provide a consistent look and feel, and streamlined user interface as smaller businesses avail themselves of a variety of traditionally discrete payment solutions. They haven’t built it yet, but they clearly “get it.”

Bottomline is expanding its traditional strength in global payables for multinational businesses and their banks into the midmarket and SMB space. The company recently acquired Intuit’s online banking solution suite for small businesses (part of legacy Digital Insight) and has been quietly amassing relevant talent.

Not at the conference, but on Glenbrook’s radar are increasingly sophisticated small and mid-sized solutions like and Mineral Tree that offer tight integration with a business accounting solution (QuickBooks, Netsuite, etc.) and its bank’s online banking platform. These solutions seamlessly link invoice generation, delivery, payment receipt, and cash application on the receivables side and the receipt, storage, approval routing, and payment of vendor invoices on the payables side. The distinction between accounting and banking is completely blurred.

Up until now, problem with bank invoicing solutions (like this one we profiled ages ago from Wells Fargo) is that they do not offer any accounting capabilities. Sure, you can create an invoice and request payment, but how do you manage the associated accounting entries, track your SKUs, or manage pricing? How does the data get into your accounting software – does the bookkeeper work from paper, or is the business managed on an Excel spreadsheet?

And finally we’ve previously covered Western Union’s mobile payment for small business cross-border payments (a huge hit with entrepreneurs) and now the company has announced plans to support invoicing and other related small business needs (at least in the US).

Regardless of niche or provider, solutions for smaller businesses should include logical workflow to guide the entrepreneur and his/her limited staff through daily business processes, have intuitive interfaces, and just enough complexity, but not too much. The solutions should channel Steve Jobs and emulate simple yet feature-rich Freshbooks, not bloated, complicated Quickbooks.

Easy to use, integrated solutions for small businesses benefit all businesses. In the complex ecosystem of B2B payments one of the most significant challenges is the long tail of suppliers that big buyers do business with. The very smallest and occasional suppliers can often be persuaded to accept a purchase card and key trading partners adopted EDI/EFT solutions back when I was still in high school. But the wide swath of transactions in the middle, between large buyers and smaller suppliers, or businesses that interact with one another infrequently are stubbornly paper check. Anything that helps erode businesses reliance on paper checks and manual processes will benefit corporate treasury customers as well as mid-market and small business bank customers.

And perhaps it won’t be long until the treasury, accounts payable and accounts receivable employees at large companies realize how much easier to use and convenient small business solutions are and start to demand that the banks improve their treasury management solutions.

If this post piqued your interest, check out Glenbrook’s upcoming workshop on B2B Payment Strategy in Palo Alto, CA on May 18th. Details and registration here.

* Glenbrook’s B2B Market Sizing segments the business payment market by industry and size of business. We distinguish between industries that sell goods and those that sell services, and those that sell only to businesses, only to consumers, or to a combination of both. We estimate both the number of invoices generated and the associated funds collected. Contact me for more information.

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