Banks would appear to hold all of the cards when it comes to providing cash management to small businesses — they can easily offer a mix of payments, billing, accounting and payroll. But a transaction automation gap still exists, leaving the door wide open for alternative competitors.
John Schulte, senior vice president and CIO of Mercantile Bank of Michigan, is partnering with one of those tech alternatives — Bill.com — to offer the tech firm's treasury management "command center" on a co-branded basis. The command center is designed to give businesses a single view of bills and expenses, enabling those with treasury responsibilities the means to prioritize the flow of cash in and out.
"Accounts receivable and accounts payable are primed for improvement in most businesses," Schulte says. "As electronic payments overtake paper, tighter integration/automation of payments flow with their account packages is now possible."
Mercantile, a $2.2 billion-asset bank based in Grand Rapids, will align the command center with other services such as payroll and lockbox processing. "Combined together, we can offer a complete back-office suite of services that facilities efficiency gains and cash-flow improvements along with more time available to focus on growing their business," Schulte says. Mercantile is offering the service as a "value add," but is considering charging fees. Bill.com charges about $20 to $25 per month for its services.
"The Mercantile Bank deployment is a bold move…it's something that we are going to see more of," says Jacob Jegher, a senior analyst at Celent.
Most banks have not assembled the different pieces of corporate payments to form a mature comprehensive online business cash management engine, in part because of technology and corporate culture integration issues, which have left siloed solutions that can be complex for businesses from a user experience and fee perspective. "If you look at ACH, there's a monthly fee, payroll has a monthly fee, payments have a monthly fee. It can become exorbitant," Jegher says.
That has left firms such as Bill.com and competitors such as PaySimple and Taulia, which offer bundled single-fee treasury management services, to step in and offer services directly to businesses and to banks as service providers. The large core vendors, such as Fiserv, Jack Henry and FIS, are also targeting banks.
"As the industry moves toward offering consolidated payments and bill for small businesses, the ancillary features and functions that are being assembled by startups are eating banks' lunch," Jegher says.
The startups are addressing a large market. Barlow Research Associates estimates the U.S. small to mid-sized business market includes four million businesses in the U.S. And manual transaction processing prevails at most of these businesses because of a broad mismatch between the technology offered by banks and the needs of the businesses.
"The problem is that while banks have great consumer systems, they don't have a business application that works [by centralizing business transactions]," says Rene Lacerte, CEO of Bill.com. Bill.com is responding to this perceived shortcoming by offering its system to banks.
The firm hopes to find more bank partnerships whereby it can integrate its command center with the bank's payment processing systems, with the command center appearing on the bank's home page as either a Bill.com link or a co-branded service.
"The banks are looking for ways to support small business customers," says Nancy Atkinson, a senior analyst for Aite. "The challenge is a combination of ensuring they have enough cash flow and giving the businesses time to deal with any [cash flow] issues. The Bill.com type solution can save time."
Another new bank product, Citigroup's CitiBusiness Smart Solutions service, attempts to address the fee issue by bundling bill payment, payroll management and merchant services. The $30 fee covers bill payment, two outgoing domestic wires per month that would normally cost $28 per month; a waived payroll management fee ($25 per month); and a waived monthly service fee ($9.95 per month). Citi did not make an executive available for an interview. In a release, Raj Seshadri, head of small business banking at Citi, said the product would shave hundreds of dollars in treasury management fees per year for small businesses.