Bank branch closures have some analysts, and even the banks themselves, on high alert. Researchers found a 2.2 percent drop in the number of U.S. bank branches in 2017, and some are concerned that, as the trend continues, small business (SMB) owners will not have access to the in-person services that a customer relationship manager (CRM) can provide.
Last year, JPMorgan Chase announced an initiative to open new bank branches in an effort to better address small businesses' needs, sparking a conversation about what effect bank branch closures actually have on small businesses — and whether entrepreneurs even want physical bank locations at all.
Curt Queyrouze, president of digital-only TAB Bank, is clear about his position on the topic.
"I'm a skeptic to the claim that XYZ is a community bank, and their customers love to have the ability to come into a branch and speak to a relationship manager," he said in a recent interview with PYMNTS.
While he doesn't doubt that this ever happens, he noted that the SMB owner that prefers in-person interactions with banks to obtain credit or open a new account is likely in the minority. As a younger generation of entrepreneur steps into the market, that minority will continue to shrink.
As such, financial institutions (FIs) that invest in in-person services are likely paying significant overhead to meet the particular needs of only a small fraction of their customer bases, Queyrouze said, and are failing to invest in the future of small business banking: virtual, transparent and available on demand.
Propelling that digital-first business model is the shift seen in the U.K. and Europe, through regulations like Open Banking and PSD2. TAB Bank has collaborated with Open Banking Limited to get a head start on the industry standards that could be a jumping-off point in the U.S. if the regulatory climate shifts in a similar fashion.
Whether driven by regulation or organic market pressures, Open Banking has introduced new opportunities to meet the digital-first, on-demand needs of younger SMB owners, noted Queyrouze, adding that he sees financing as a particularly large opportunity for Open Banking disruption.
"It's what you see with Plaid on the consumer side in terms of giving the ability to have insights, for the customer to offer up their data in a controlled environment to get benefits back," he said. "It's working very well on the consumer side, and this is where the future of providing credit and other services to small businesses is going to get leveraged."
Shifting the control and ownership of data from a bank to the small business customer offers an incentive for that SMB to open up its data in return for elevated services. Queyrouze offered the example of a small business owner being able to see a pre-approved credit opportunity within a mobile app, allowing them to obtain financing within seconds — rather than having to manually provide data by filling out forms and waiting for approval.
There are other applications for opening up small business data in the banking sphere, but it's not the only disruption headed the way of the industry. Queyrouze said he is watching the faster payments landscape closely, and exploring how real-time payments could disrupt B2B transactions and small businesses' financial management capabilities. He also said he anticipates a major disruption in the accounts receivable financing and factoring market, as technologies like blockchain step in.
"We believe that, as it stands today, as it is structured, factoring is going to disappear in the next five to 10 years," he said. "There is too much required of the customer to comply with and get access to funds."
Technology that can independently verify transactions — including the movement of goods down a supply chain, the receipt of shipments and the payment of invoices — allows financiers to "move away from financing a business, and move [toward] financing the transaction," he added, presenting another opportunity for seamless data flows to boost the efficiency of small business financial services.
Overall, the small business banking landscape is undergoing massive shifts, and these disruptions may not necessarily be best managed or embraced by investing resources in in-person banking. Rather, Queyrouze said, focusing on digitization and open data will allow banks to prepare for the future of SMB services.
"The payments infrastructure, and the working capital support behind it, is about to undergo a pretty significant change," he said.