Small business (SMB) banking is in need of an overhaul. Between the threat of FinTechs and small business owners’ increasing willingness to switch banking providers, financial institutions are waking up to the demand for better SMB services.
But an increased focus on innovation means the path to understanding what actually constitutes “better” is unclear. According to Salman Mahmood, CEO of enterprise and entrepreneur marketing software company BleuPage, there are a lot of unknowns when it comes to the future of SMB financial services. That means risks for innovators (and banks) — but a massive opportunity too.
“Business banking is still in its infancy stage,” Mahmood told PYMNTS. “We can view debits, credits and import those entries into our accounting system to reconcile with our own books. APIs are available for business systems to integrate with the bank system.”
But often, that’s where the breadth of services ends. As use of APIs rise in the financial services sector, the CEO explained that entrepreneurs still grapple with manual data management despite these integrations.
“There is a lot of functionality missing in today’s business banking, which is causing an unnecessary burden on payments,” he added.
This reality is often cited by small business FinTechs. BleuPage recently entered this space itself with the creation of Bizggro. Announced last month, the solution offers a suite of tools for SMBs and entrepreneurs, including accounting, expense management, customer relationship management (CRM) and document management. When the company revealed the rollout of Bizggro, BleuPage emphasized its focus on the “solopreneur,” a market segment Mahmood said is in dire need of upgraded financial services. This demographic is also in need of more streamlined services, however, as entrepreneurs can become quickly overwhelmed by technology adoption and integration.
“I was a solopreneur and small business owner once, so I know very well how startups and small businesses struggle to adopt technology due to lack of budgets and resources,” he said. “Those solutions available on the market are always lacking something, and there are always hidden costs. Small businesses cannot afford to subscribe to multiple tools; their main focus is on generating revenue to pay their month-end bills.”
Entrepreneurs also don’t have time for in-depth market research to understand which tool is right for them, Mahmood added.
But small businesses are certainly willing to experiment. According to FIS’ 2017 survey, 14 percent of small businesses that use a large, global bank said they’ve switched providers in the last year, and 48 percent said they’re at least considering switching banks because their current provider lacks the products and services they want.
That doesn’t just mean switching from one High Street bank to another. According to FIS, use of alternative FinTech is on the rise, with more than a third of SMBs reporting they already use non-bank financial apps to make B2B payments.
But FinTech innovation moves at a lightning pace, and Mahmood told PYMNTS that while he predicts disruption to small business banking and financial services from a few technologies in particular, it’s difficult to forecast exactly how that disruption will play out.
Take faster payments, for instance.
ACI Worldwide and YouGov released a survey last year that found two-thirds of U.S. small businesses said they would be encouraged to switch FinServ providers to one that offers real-time payment capabilities. SMBs across Europe are similarly enticed by the capability, citing faster payments for customers and suppliers as an in-demand capability.
Of course, it seems FinTech innovators cannot have a conversation about disruption without mentioning blockchain too.
“Mobile banking with blockchain and faster payment technologies will grow faster than ever before,” Mahmood predicted. “Businesses want to give every payment option to their customers, and customers’ choice of payments are rapidly changing. However, banking is not offering what the customers are demanding.”
“Faster payments have made lives much easier,” he added. “With blockchain development, software companies are launching new ideas to overcome most of the challenges faced by businesses and banks in security, real-time connectivity and integrations.”
But regulation will be a huge question mark, especially when it comes to blockchain and cryptocurrencies, with regards to how market adoption of these tools occurs, the executive said, adding that regulatory uncertainty is a major factor behind banks’ inability to more quickly adopt and offer cutting-edge tools.
“Customers want freedom from banking costs, bureaucracy, red tape and lengthy payment procedures,” he said. “On the other band, banks with regulators want to enforce their processes, compliance and charges to customers. Regulators are gearing up to deal with money laundering-related challenges in blockchain and virtual currency transactions. It is very difficult to predict who will win if virtual currencies are restricted by regulators and banks’ technologies will be amended to something new. It is, however, evident that technology will win.”
The banks and regulators, meanwhile, will have to develop new ways to ensure and enforce compliance, the executive noted.
And while he — and the rest of the financial services space — cannot predict what small business banking might look like in five years’ time, the executive is bracing for a few specific disruptors.
“In my view, the biggest impact on small business banking lies with virtual currencies, seamless integration and 24x7x365 banking services to deal with fast-growing electronic commerce trends,” said Mahmood.