On September 19, 2023, NYPAY hosted a virtual event, “State of Small Business Banking – Post-Pandemic.” We came away with many new nuggets of information!

“In the digital age, a bank’s branch is not a place you go, but a thing you do.” – Ian Benton, Javelin Strategy & Research.

“Banks need to be more than a place to hold money; they need to become advisors and allies for small businesses.” – Chris Wong, Bank of America.

Small businesses employ over 50% of workers and a staggering 90% of businesses worldwide. Yet, they often find themselves at the crossroads of being too large for personal financial products and too small for corporate banking solutions. As we navigate a post-pandemic world, how are financial institutions adapting to serve this crucial yet complex market segment better?

The Small Business Banking Landscape: A Study by Phase 5 Research

The event opened with Steve Hansen, Partner with Phase 5 Research, discussing the 2023 Small & Medium Business Banking study covering more than 1,000 decision-makers. The research report indicated that despite small and medium businesses being generally satisfied with their banks, mainly their credit unions, there remain glaring gaps in banking and payment services that small businesses need. In addition to the need for borrowing, tasks such as managing cash flow, tracking payments, and reducing processing delays are paramount for small businesses, often trumping the significance of a banking relationship itself.

Other Industry Experts Weigh In

A panel discussion with experts, including Ian Benton of Javelin Strategy & Research, Brian Moran of Small Business Edge, Matt Baker from Visa, and Chris Wong from Bank of America, explored various dimensions of small business banking. Topics ranged from the existing services offered by financial institutions to the challenges of delivering in-branch vs. digital banking solutions.

What Small Businesses Need

Small businesses differ vastly in their needs based on the industry and size, making them a challenging group to serve at scale. Yet, they are loyal and valuable customers. They are not just chasing yields but also seeking better digital tools for managing their finances, as recent shifts in small-business deposits indicate.

The Real-time Payments Conundrum

Despite the potential advantages of real-time payments, most small businesses still rely on traditional payment methods like checks and cards. There is an evident need for educating this segment about the benefits of 24/7/365 availability and the potential for fraud prevention.

The Credit Challenge

With tightened credit standards, small businesses often struggle with short-term cash flow. The traditional approach of underwriting based on personal credit scores is slowly changing, but access to working capital remains a vital concern.

The Digital Disconnect

So far, the digital experiences in small-business banking have been more transactional than engaging. However, as technology advances, there’s an opportunity to transform the financial institution into a hub for daily and long-term financial management, incorporating various fintech tools into the banking experience.

A Glimpse of the Future

Matt Baker from Visa and Chris Wong from Bank of America emphasized that the pandemic has changed the landscape in several ways. While it brought attention to the vulnerabilities of small businesses, it also highlighted the importance of digital adoption and opened up new opportunities. The focus on supporting small businesses has never been more critical, echoing the sentiments of all the panel experts.

The Road Ahead

According to Jack Henry’s 2023 Strategic Priorities Benchmark Study, about 65% of financial institutions plan to make changes to meet small business needs better. As technology advances, there’s a golden opportunity for financial services to evolve from being transaction-based utilities to becoming partners in the success of small businesses. With the competitive environment and rapid changes in work, aligning services to small businesses’ nuanced needs is beneficial and essential for the sector’s future sustainability and growth.

About the Author

Deborah Baxley, International mobile/cards payment consultant and Partner at PayGility Advisors.