Terry Otte wants his small bank to be able to compete with larger institutions, but the $800 million First Bank NW Corp. lacks the scale to perform the kind of due diligence necessary when undertaking a major endeavor such as providing Web-based payroll services for small businesses.
That's where a partnership involving a state bankers' trade group and a tech firm can come in handy, he says. Along with MBank, First Bank NW Corp. is an Oregon-based community bank taking advantage of a business partnership between BancSource, a wholly owned subsidiary of the Oregon Bankers Association, and PayCycle, which sells on-demand payroll services. The partnership will make PayCycle's on-line payroll services available to small-business customers and local accountants via community banks-using scale to reduce the costs and resources that a business or community bank would face if trying on-line payroll themselves. "BankSource can do the due diligence that we don't have the manpower to do," Otte says. "It gives us some buying power."
Otte says his bank's small-business customers also lack the resources to provide their own on-demand payroll services, particularly since the product is aimed at the smallest of the small businesses, those with fewer than 20 employees. "It's a huge, untapped market," says Jim Heeger, CEO of PayCycle. Heeger says that of the five million or so small businesses in the U.S., only about 15 percent are offering e-payroll services. While other businesses are using software to expedite payroll, Heeger says about 50 percent of small businesses still handle payroll manually.
PayCycle's platform enables what it calls a "do it with you" approach to payroll which guides businesses through the entire process from paychecks to W-2 forms. By integrating with small-business accounting packages, such as Intuit's QuickBooks and Microsoft Money, the product eliminates data re-entry.
Heeger hopes that by seeking to acquire bank customers through a mix of its own electronic marketing, targeting accountants and entering into partnerships, the tech firm can separate itself from its competitors-and tap into the small-business market and community- bank segments in a manner that "levels the playing field" with larger companies and financial institutions.
Community banks often play off of the combination of local connectivity with their region-particularly with their fellow small businesses-and the use of new technology to give them a fighting chance against national banks. "We hope that small banks will be able to keep up with their big daddy customers," Heeger says.
Each prong of the tech firm's courting strategy touches small businesses and community bank, allowing PayCycle to sell its product with fewer "salespeople on the street," common among most payroll providers, Heeger says. Accountants, for example, are typically trusted advisors of small businesses, and, as such, word of mouth can bring the tech firm in contact with potential customers.
The tech firm reached MBank and First National via the partnership route, specifically the alliance with BancSource, one of a handful of arrangements that PayCycle has made, a list that includes partners such as Digital Insight and Corillian. "If you can give the groups a state-of-the-art on-line payroll solution, and they think it's a good opportunity, they will steer their community banks and their community-bank customers to us."
Tom Perrick, president and CEO of the Oregon Bankers Association, which owns BancSource, says the partnership is a departure from its traditional activities, which normally focus on the bank as the end user. In this case, the group is going a step farther by endorsing a product that's used by bank customers.
Based on membership demand, the trade group began a search for a tech firm in February, and went live with PayCycle in July with the two pilot banks. Perrick says that while the trade group is part of the effort that's making the product available to banks, there's not necessarily a "groupwide" usage standard. "The banks will create what they need, and it will be up to the bank to determine whether it can be used to sell product to their own customers," he says.
Otte says that since his bank has just rolled out the service, hard numbers on success are unavailable. He hopes more stringent regulatory requirements on business payrolls will provide an onus on businesses to look to new technology to make payroll faster and more accurate."The new requirements are taking more manpower, and that adds up to dollars and cents," he says.
The outlook is good, he notes, in part because many small businesses aren't even aware that offerings such as e-payroll are available to them. "They just don't know what opportunities or products are out there that they can use," he says. "They're trying to do it internally or have accountants do it, and that gets to be pretty expensive."
