What SMBs want from the digital financial experience

Similar to what has happened in the consumer space over the past decade, traditional financial institutions have seen an increasing number of small and medium-sized enterprises (SMEs) flock to digital fintechs and neobanks to meet many of their financial needs. One of the main reasons for this exodus is that the legacy technology infrastructure inherent in many banks and other traditional financial services providers does not allow for the quick and easy development of new digital products and services.

How this problem can be overcome was part of a larger discussion about what kind of technology SMBs want when it comes to managing their finances in a recent PaymentsJournal webinar titled “Disruption and innovation in SME banking: what SMEs want, how their needs are changing and how to win using a customer-centric approach.” The webinar featured a lively discussion between Brian Riley, Director of Credit Advisory Services at Mercator Advisory Group, and Scott Johnson, Head of Strategic Expansion at Galileo Financial Technologies, a card issuance and payment platform based on the API.

Look beyond traditional providers

Much of the discussion focused on how SMEs are looking beyond traditional financial providers to meet their banking and payment needs. A sobering statistic that was shared, that came from a small business survey conducted by consultancy firm 11:FS, is that only 18% of small businesses say they “strongly agree” that banks provide the services they need to effectively manage the financial side of their business. business.

“Overall, SMBs are dissatisfied with the services provided by banks,” Johnson said, adding that with about 33 million small businesses in the United States, this is a very large market and potentially lucrative.

SMEs are increasingly looking for a single platform to manage their entire financial life; Currently, many small businesses use several different providers for different financial products and services.

“Companies want to be able to manage their cash flow and make day-to-day business decisions based on their overall financial health,” Johnson said. “And then they want that loan component, or a credit component as needed to help them grow their business.”

Both panelists noted that this trend mirrors what is happening in retail banking, where many are turning to digital newcomers for services such as BNPL, budgeting and integrated finance that banks do not offer. . In a poll shared during the webinar, nearly 50% of consumers said they would use an internet or wireless provider, or streaming service, for their financial needs. Pretty much as many have said they would use a national retailer or even their employer for financial services.

Small business owners are consumers too, and they want the same kinds of experiences they expect from challenger neobanks,” Johnson said. Small businesses also want flexible access to credit when they need it, reflecting the growing popularity of BNPL platforms with consumers.

The rise of integrated finance

A particular area of ​​interest for small businesses is integrated financing and integrated payments. Almost half of small businesses even said they would be willing to pay a higher price to a digital provider for such services.

Riley noted how seamless and intuitive the payment experience built into a service like Uber is for the user, who doesn’t even have to think about payment.

“In-App Payments is a somewhat elusive word, and you’ve probably experienced it without even knowing it, whether you’re arranging a car service, [or] really [doing] anything in the gig economy,” Riley said.

Small businesses want to be able to offer these integrated experiences to their customers, but are often unable to do so because their banking provider may not offer these digital capabilities.

Johnson cited Toast — a point-of-sale hardware provider primarily serving the restaurant industry — as an example of a company doing a good job of providing integrated financing to its business customer base.

“They’re doing an amazing job of not only providing an amazing restaurant experience to be able to manage everything they need in the restaurant, but now they’re able to integrate payments holistically into that experience,” he said. he adds. “They are able to get so close to their customer that they can even offer a loan product to a restaurant because he sees how many sandwiches have been sold.

Johnson continued, “That’s why they’ve now integrated everything into their platform and product offering. And that’s where we see these kinds of really cool integrated financing solutions start to grow, because, again, these solutions are so intertwined that you don’t even think about them.

Ultimately, small business owners want to manage the entire continuum of their financial life – from loan and savings needs, to asset protection, business management and integrated financing – all from one supplier.

How Banks Can Overcome Legacy Systems

Banks are well positioned to be this sole provider, as they have a long history with their business customers and are generally considered more reliable compared to digital startups. But banks can struggle to offer the integrated digital services their small business customers want because of legacy infrastructure.

“A lot of the infrastructure and plumbing has been around for almost 40 years,” Riley said, adding that banks’ various internal data silos make it difficult to innovate.

“I think of the days when I was at [a Big Four Bank] decades ago, and it was easier to get information from a credit bureau about other relationships the customer had than to look at an internal system that cut across all those silos,” he said.

Extracting and replacing entire central systems is a risky and costly solution to this problem for the vast majority of banks. But they can innovate despite legacy infrastructure by adopting an open API infrastructure, according to Johnson. APIs can be layered over existing systems and used to integrate with various third parties to rapidly deploy new products and services. This is especially important given the pace of digital innovation.

“What was sexy 3-4 years ago is just OK now,” Johnson said. “But with an open API approach, when the next big feature arrives, you can react quickly without the need for a massive technology rebuild or a massive reengineering effort.”

Johnson noted that the digital habits that were beginning to be adopted by consumers and small businesses in recent years have accelerated during the Covid-19 pandemic. It is now the challenge for banks to offer the digital products desired by their customers.

Ultimately, banks don’t have to transform overnight, but can use an open API architecture to start serving the digital needs of their SMB customers.

“That doesn’t mean you have to be everything for everyone on day one,” Johnson said. “But I think you have to have that vision for how you develop your product over time.”

Learn more about the future of banking for small businesses

In the recent webinar hosted by PaymentsJournal, Johnson and Riley discuss several other key details of small business banking, including:

  • Data on trend interest in non-financial corporate banking services
  • Overview of Integrated Finance Market Growth
  • Specific Small Business Banking Use Cases

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