Small business owners are considered followers of consumer trends in terms of payments technologies; entrepreneurs use digital financial services in their personal lives, so that will naturally carry over into when they are managing the finances of their companies.
SMEs aren't getting the banking services that fit their needs now that they're demanding online and mobile solutions, however. And according to Fiserv Vice President of Strategic Marketing, Digital Channels and Electronic Payments Steve Shaw, just like consumers, small business owners will ditch their banks in favor of third-party FinTech companies that fit their needs.
"There is real demand out there, and small businesses are hungry for these types of services," like digital cash management tools, Shaw explained to PYMNTS. "Banks have a window right now to take advantage of that."
The market for more sophisticated, small business-targeted financial services has gone largely unfulfilled lately, however. Shaw attributed this to the delicate position of a small business — in need of more robust services than the traditional retail banking, yet not quite up to the scale of large corporations.
"The small business has long been underserved in the banking space," the executive said. "Banks have been focused on the retail side or the large corporate side — that's where the money is — and small businesses fit in the middle."
Entrepreneurs acting as both consumer and small business have created the need for what Shaw described as "retail banking on steroids."
Recent research from Fiserv uncovers a clear demand for this level of services, too. For instance, according to a survey conducted by the firm in late 2015, cash flow management is no longer sufficient for small business owners; nearly one-quarter stated they would want a predictive cash management solution from their FI.
Fiserv's survey also uncovered another interesting phenomenon in the world of small business banking: Online and mobile banking solutions are encouraging the use of various payment rails.
Nearly half of small business owners surveyed (47 percent) said they expect their use of ACH payments to increase this year via online banking; a quarter said wire transfers via online banking platforms will also become more frequent.
The key here, Shaw explained, is not how small businesses are using the different payment rails but that digital banking tools are behind the trend.
"I think if you ask a lot of small businesses what ACH stands for, they would have no idea," he said. "They would use these services, but what they're really looking for is: 'I need to send money from point A to Z, and it needs to get there in this time frame, and I don't care how you do it. Just do it for me."
Whether via ACH, wire transfer or another type of payment rail, small business owners are increasing their call for better banking solutions they can access online — services like eInvoicing and online bill pay, for instance.
"They're searching for a way to send money to their vendor that they have to pay, or do payroll, or try to collect money from clientele," Shaw noted. "It's better than taping an invoice to the front door and hoping they get a check within 30 days."
Sending digital invoices and receiving payment via direct deposit aren't banking needs you'll find among individual consumers, but they stem from entrepreneurs acknowledging how digital banking and payments make their individual lives easier. So, why can't it do the same for their business?
"A lot of small businesses are consumers as well, and they run a small business so they're used to the ease and flexibility of a digital banking system on the consumer side," Shaw said.
Financial institutions, however, have emerged as one of the biggest roadblocks to small businesses actually accessing the SME-focused resources they crave. The reason? Shaw said it's due to anxieties among banks that they'll lose SME customers if they start to charge for these value-added services.
Research, though, presents evidence to the contrary.
"Small business owners are willing to pay for value-added services in the digital banking world," the executive stated. "There's a fear that, if banks move to a retail-plus offering, they'll lose that opportunity to charge money. But small businesses have shown they're willing to pay for those services."
If banks don't start offering these tools soon, SMEs will flee, Shaw said. It's another way entrepreneurs have brought their expectations as bank consumers into the world of small business ownership.
"Just like consumers, if the bank doesn't offer some sort of mobile payment or something, they'll go to a Google or Amazon. It's the same type of situation on the small business side," Shaw said. "They need to run their business, and if they can't get it from their bank, they will find somewhere else to go."
So, while banks are worrying about losing business by adding value-added services for a cost to small business owners, FIs are losing business because they're hesitating.
Look at the rise in financial innovation and technology conferences and solutions providers, Shaw said. Many of these newer FinServ players gear their tools towards the small business owner.
"These companies realize that small businesses will pay for services like that," he noted. "There is real opportunity for it."