Over the last several years, banks have lost some ground to fintech in the small-business space.
For the customers, it is not as if they wanted to leave their banks. To the contrary, many have felt forced to look elsewhere because they felt either underserved or the experience was something from a bygone era.
Banks have gotten hip to this in the last year or so, however. Online lenders have pushed them to improve their credit functions. The promise of blockchain technology has pushed many to look for ways to streamline processes now. And, increasingly, banks are trying to make it easier for customers to share their data with third parties.
The latest example is Silicon Valley Bank’s recent partnership with the cloud accounting platform Xero that will allow the bank and Xero’s mutual small-business customers to share data through a direct, application programming interface. Customers will be able to manage their daily bank reconciliation activities and understand cash flow in real time in one centralized dashboard. Xero has similar partnerships with Wells Fargo and City National Bank.
“We’re seeing an increasing trend in this direction, not only in this case with Xero, but between banks and fintech providers in general,” said Christine Barry, a senior analyst with Aite Group.
That’s because banks have seen fintechs poaching their small-business customers in recent years, she said. A survey Aite Group took of small businesses in 2015 found that 40% go to fintech companies, as opposed to their primary bank, for at least one financial need.
But banks are hoping to change that by focusing more on this overlooked segment, Barry said.
Small-business customers "were for a long time overlooked; they were in a no man’s land between the consumer and larger commercial clients,” she said. “But the small-business segment is now starting to be viewed as a source of untapped revenue by banks. Banks are under pressure to find new sources of revenue and are starting to focus on small businesses.”
Small businesses and startups make up much of Silicon Valley Bank's client base, so catering to these customers is paramount, said Megan Minich, SVB’s head of product development and channel delivery.
“Small businesses expect a consumerlike experience, so that’s what we are trying to give them,” she said. “Often they can’t get all their [financial] data in one place; expenses may be in one system, payables in another. We want our clients to be able to focus on their business, not how they get their financial data from point A to point B.”
Minich said SVB also needs to provide these types of tech-savvy services to its customers because many of them are innovative technology companies themselves.
“These are forward-thinking companies that are creating disruptive technologies themselves,” she said.
In general, small businesses tend to be more tech-savvy and appreciate innovative services, said Keri Gohman, U.S. president for Xero and former head of small-business banking for Capital One.
“It’s often hard for them to get real-time data and a real-time view of their cash flow,” she said. A data integration for small businesses such as what SVB and Xero are partnering on “can really deepen the relationship banks have with a small-business owner. It’s something they appreciate.”
Indeed, several banks seem to be responding to the call for streamlined functions by partnering with data aggregators and fintechs to share information through APIs. Capital One, for instance, recently signed a contract with Expensify, a platform that imports credit card transaction data directly to expense reports, as a service to small businesses and consumers. Capital One is also in discussions with several other firms on similar partnerships, a spokeswoman confirmed.
Also, U.S. Bank last year announced a partnership with the accounting software company Sage on a new product called AP Optimizer for their mutual customers. AP Optimizer allows small-to-midsize business customers of U.S. Bank and Sage to manage their cash flow in real time and offers customized advice, such as suggesting the ideal time for the business to pay bills and the best method for payment. Users can then act on the tool’s recommendations from any computer or mobile device.
It also allows small businesses to see a “peer comparison,” which shows how much an organization is spending on payments and how that stacks up with similarly sized companies, said Dominic Venturo, chief innovation officer at U.S. Bank.
“We think it really benefits our small business customers,” he said. “Being able to see that peer comparison and getting suggestions on the optimal way to pay at the optimal time is a pretty powerful tool for them.”
These services that banks such as Silicon Valley Bank and U.S. Bank are offering are crucial to win back small business customers, said Aite Group’s Barry.
“Most small businesses would prefer to get all their financial needs from their bank,” she said. “They trust the bank and view it as more secure. They would prefer their bank be a one-stop shop instead of having to look elsewhere to have all their financial needs met.”
Robert Barba contributed to this article.