Banks’ shortcomings when servicing small business clients have become an engine behind the FinTech boom. Alternative lenders, for instance, largely emerged as a response to banks retreating from the SME lending market. Other SME-serving FinTech companies are offering the digital payments and cash management solutions many traditional FIs consider too costly to offer small businesses.
Bill.com is one of those firms that emerged to fill in gaps left by banks — in this instance, for small business B2B payment needs. But the company has just announced Bill.com Connect, a solution built for banks to service their small businesses’ payment needs.
Whether through solutions built by FinTechs for banks or through collaborations between FinTechs and banks, traditional FIs now have an opportunity to close the gap with small businesses. Bill.com SVP of Product Management Sanjeev Kriplani recently told PYMNTS about where those gaps exist and how crucial it is to close them as small firms look to their banks to grow and evolve.
The Small Business Challenge
Historically, Kriplani explained, small businesses have been a weak spot for banks.
Banks want to offer basic bill pay services for small businesses for free, but the commercial banking offerings that meet mid-market and large corporate needs are too sophisticated for SMEs to be offered without a fee.
“So, what they do is take the consumer product and masquerade it as a small business product,” Kriplani said. “It’s cheap and easy.”
The challenge, then, is for a bank to continue to service a small business as it grows and as its needs become more complex — and basic consumer banking services aren’t that flexible.
The predicament has been around for a long, long time, and Kriplani said he’s not exactly sure why.
“To be honest, it’s a bit of a mystery to me as to why it has persisted for so long,” he said. “I would have thought somebody would have tried to solve this sooner.”
But meeting small business needs is no cakewalk, the executive admitted. Balancing a flexible, adequate financial solution for small businesses that is affordable is difficult, while avoiding the creation of a solution that ends up too complicated to use efficiently amplifies the challenge.
Kriplani pointed to a very basic banking solution to illustrate this point. A small business can easily use a consumer bill pay tool to pay an invoice. But as the company grows, it may want to pay two invoices at once and specify that one payment amount is for Invoice A, with a different amount for Invoice B.
“The consumer solution doesn’t allow you to do that, and it’s incredibly basic functionality,” he noted.
It causes businesses to build their own custom interfaces that struggle to communicate with other systems, like accounting platforms.
In short, servicing a small business can quickly become a technological mess.
The Small Business Demand
Here’s where the challenge of providing the right banking services to SMEs gets even more complex.
Kriplani explained that, when it comes down to it, small business owners are, themselves, consumers. It’s led to a demand for mobile and digital banking solutions that are just as convenient as those that serve consumers.
“There has been just an explosion of incredibly easy-to-use consumer technology, both on the web and, in particular, on mobile,” he said. “And now, all of these small businesses are getting exposed to it and saying, ‘Wait a minute: If things can be this easy for me as a consumer, I have a right to expect that they be this easy for me as a business.'”
This understanding makes it imperative for banks to not give up on the small business challenge because, according to Kriplani, FIs will begin to feel the pain of an unsatisfied small business customer.
“Small businesses are starting to choose their bank based on whether or not it has easy-to-use technology, and I believe that banks that don’t respond to that call will ultimately start to have problems with retention of small businesses,” he stated. Millennial small business owners are a big threat in particular, with researchers finding that, for them, these simplified and convenient banking tools aren’t optional when it comes to picking their financial service provider.
As has been the recent trend in the financial services industry, banks are now beginning to ensure they keep their small business clients by collaborating with the FinTech disruptors that emerged to step in where banks stepped out in the first place. And while Bill.com has grown as a company that offers an alternative for small business owners than traditional banks, Bill.com Connect signals a path to work with FIs to solve the challenges of small business clients, while meeting their ever-increasing demands.
This kind of ecosystem is critical to helping small businesses adopt payments technologies that can help manage cash flow and drive success, Kriplani said. By banks offering better payment tools, for instance, SMEs will be encouraged and driven to adopt electronic payments.
Understanding the dynamic of offering what a small business wants and introducing an SME to what it didn’t know it needed will be critical to the success of the banking industry in this space, Kriplani noted.
“If you don’t hit that very high bar, I think what you’re going to see is small businesses rejecting technology solutions more and more, because they keep comparing them to the easy-to-use offering they themselves experience as a consumer,” he said. “To me, that’s one of the most important things that the industry must take away and realize, because that will have a huge impact on small business adoption of technology through banks.”