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'Banks don't know who owns the SMB product segment; they have mismatched products and inappropriate service and delivery models,' BC Krishna, president and CEO of Cambridge-based MineralTree.

How Big Data Helps Banks Strengthen Ties with Small Business

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Small businesses have a crying need for better analytics. A survey by Baynote found that 93% of retailers rate analytics as somewhat or most important to customer retention. More than 60% of businesses use an ersatz spreadsheet for business intelligence, according to SAS statistics. When you think of the small business owners you know, they simply don't have time to do investigative number crunching on their own business; they thereby in many cases miss sales or cost-savings opportunities.

Card-related offers and analytics company Cardlytics has cottoned on to this need. The company, which works with 400 bank partners, analyzes the bank customers' transaction data, and spits out offers and deals for its merchant clients, helping them reach their competitors' customers.

Citibank a year ago launched a Citi Payment Analytics tool that gives clients a consolidated view of their payments data via scorecards and graphics, to help them manage activities across multiple payment types, currencies, channels and geographies.

Smaller banks can do the same: they already store all their small businesses' financial data in their databases. With the right tools they can extract it and present it back to them in a meaningful format.

Rick Hall, senior vice president and director of product strategy at Associated Bank, a $24 billion-asset bank based in Green Bay, Wis., has been thinking about either buying or building software to provide better analytics on small business customers' behavior both to internal salespeople and to the small businesses themselves.

"We're becoming more focused on the behavioral aspects of corporate clients, rather than the old-line view of annual revenues and SIC codes," Hall says. "The more we get into the data, the more we uncover the need for pattern recognition as well as opportunities to extend the sales conversation in a more substantive way when our folks are dealing with existing clients or meeting new prospects. We can create a pathway to a more relevant conversation that solves issues for our corporate clients."

The bank analyzes its business customers' transactions monthly. Alongside the transaction data, it examines external data about these clients' geographical location and annual revenues.

The biggest behavior change Hall has observed and he recognizes that he's not alone -- is the demise of the check and the electronification of payments. "From an operating perspective, we can drive out costs," by capitalizing on that change, he says. But the bank also plans to package up that data and report it back to its commercial clients.

"The addenda records on payments are vital and helpful for the accounts payable departments of clients," he says. "As you get more electronic, you have the ability to deliver more information and that info is helpful and beneficial: it creates a lower-cost infrastructure from a financial institution perspective and it creates more information and value to the client."

MineralTree came out today with a product called MarketSphere that analyzes small business transactions to uncover patterns. It draws on the bank's own data and external data sources such as Dun & Bradstreet. It takes into account factors such as payment volume, velocity, revenue, employees, and age to assign a score to each bank customer, and provide some insight into the businesses value and propensity to use other bank products.

The idea is to help banks roll out more meaningful services that better meet their customers' needs, help their customers save money and generate revenue for the bank.

"When we tell a bank that between 15% and 20% of their SMB customers make 80-90% of their payments by paper check, and perhaps surprisingly, make almost no payments using online bill pay or ACH they understand there's an enormous opportunity there," says BC Krishna, president and CEO of Cambridge-based MineralTree. This is a rather self-serving statement, as MineralTree provides a small business electronic payments product.

Krishna describes a chaotic state of affairs in banks' small business departments.

"Banks don't know who owns the SMB product segment; they have mismatched products and inappropriate service and delivery models," he says. "The selling process is mismatched. You can't serve customers if you don't know them. Banks tend to segment small business customers by revenue. That's a terrible way to do it. It's hard to assess the revenue of a small company and it's hard to stay current on that number. And revenue segmentation is inconsistent across the industry."

All these blind spots lead to lost opportunity, he says. "Other non financial institutions that target small businesses don't target them by revenue but by industry," he offers as an example. "It's a pretty obvious. A doctor's office is very different from a contractor -- the type of bookkeeper, the types of payees, the payment frequency, the way they want to get paid are all different. If you don't understand their cash flows, you can't serve them effectively."

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