Small Business Banking: Revisiting the desktop and getting serious about cash management insights to meet new market challenges
With digital banking fast-tracked during the pandemic, modernization of online banking for small businesses is critical—especially as banks face headwinds from fintechs, accounting software providers and banking-as-a-service innovators; it’s time for banks to revisit desktop banking and cash management insights to enable a true digital-first offering.
By Susan Foulds, Managing Director at Keynova Group
Much ink has been spilled about how the pandemic has fast-tracked digital banking adoption. The acceleration comes as banks battle new kinds of competitors for the primary small business banking relationship. In addition to community banks, which have entrenched small business relationships, Banking-as-a-Service (BaaS) and accounting software providers are also making a play for the small business banking relationship. Hastened digital adoption also puts new emphasis on banks’ longer-term efforts to improve small business banking. Banking leaders are responding in two related ways:
· Recognizing the unique value of desktop online banking to small businesses
· Pushing hard into cash management analytics, digital advice, and integration with third-party apps
This design work, and the focus on providing small business owners better insight and visibility into their finances, plays to banks’ native advantages. It also enables a true digital-first relationship model that can transform small business banking economics.
Responding to Banking-as-a-Service Competition
Banks face growing competitive threats as the emergence of BaaS has enabled digital-native brands with millions of small business customers to offer checking accounts. The latest example: Payments provider Square launched small business checking a year after Intuit’s launch of its business checking account product, QuickBooks Cash. Challenger small business banking offerings are not new, and entrants such as Mercury have gained traction, but the trend of popular digital brands like QuickBooks and Square introducing small business checking poses a new threat to banks.
These new checking contenders, encouraged by accelerated digital adoption among small businesses, are accentuating a hard truth for banks: Small business banking economics are challenging. Most smaller businesses aren’t ready for sizable loans, financial and fraud risks are greater, and small business bankers can be expensive given how many companies they can cover effectively.
Taking a Fresh Look at Desktop Banking
So what are leading banks doing? One asset they’re revisiting is desktop banking. Heavy investment in mobile features and experiences remains essential, yet innovative banks are moving beyond thinking only in terms of “mobile-first” design. They are taking a fresh look at the desktop to address the qualitatively different demands of on-screen real estate associated with greater financial management requirements for operating a small business. As an example, PNC’s Cash Flow Insights desktop view offers cash flow analysis, trends and spending reports, reflecting a proactive investment in features and experiences commonly used by business customers for more complex tasks.
The idea that one size does not fit all also applies to companies of varying sizes and complexity. While most small businesses won’t get much larger than they are today, firms with an equivalent amount of revenue may have vastly different financial management needs and practices. Banks can do well by maintaining one digital retail banking platform with a consistent retail experience that allows customers to select from optional business capabilities and features—potentially via APIs and third-party apps—and ideally with a UI that adjusts to reflect the combination of features selected.
Raising the Bar on Cash Management Insights
Innovators will also be focusing heavily on cash management insights coupled with third-party integration. Many banks talk about giving companies better insights to their financial data, however, few have pulled ahead of the field. Among the ten banks covered in the 2022 Keynova Group Small Business Banking Scorecard, Bank of America is the only bank that offers small firms the ability to aggregate external account transactions—providing business owners with the capability to generate a complete financial report that includes external accounts versus transactions limited to the host bank’s accounts. Leaders in this area will have more flexibility to rework staffing models as they offer insights digitally. An added benefit: their bankers can use the same insights to get up to speed more quickly on any given client.
While Xero, QuickBooks, and other accounting packages offer analytics, they haven’t set the bar so high banks can’t compete. In fact, banks that can offer smaller businesses a more integrated and less complex dashboard experience for cash flow analysis and reporting within digital banking—with the added advantage of offering multiple payment channels, real-time alerts, credit-driven options, and ways to follow up with live bankers—have a have a leg up. For that matter, banks can provide insights on their own data in real-time, without the hiccups that arise when an accounting package imports data extracted from financial institutions. They can even strike partnerships to bring third-party insights into their own platforms, as Bank of America has done through its partnership with Dun & Bradstreet to provide customers with their credit profiles, and ultimately support API standards for more open banking to seamlessly aggregate data such as via Plaid and MX.
Increasing demands associated with the work-from-home and hybrid work environments have been especially challenging for small businesses—opening the opportunity for larger banks with stronger digital banking to compete more effectively against local banks, BaaS and accounting service providers. However, basic consumer digital banking or a one size fits all approach does not meet the needs of various small business profiles and segments. Regardless of their size, banks that focus on improving their digital small business platforms and user experiences to address streamlined cash flow management, real-time actionable alerts, payments options, targeted digital advice and customer support will be better positioned to capitalize on this evolving market.
Susan Foulds is a Managing Director at The Keynova Group, the trusted competitive intelligence firm for digital financial services since 1999. With three decades of experience in digital strategy, mobile and online banking, and competitive analysis, Susan has committed her career to emerging technologies that effect real advancements for consumers and small businesses through digital enhancements, efficiencies, and UX best practices. She previously held positions at Dynatrace, Keynote Systems, Online Resources, U.S. West Wireless, BT and IBM.