Access to financial services is a staple of success for any business, but many SMBs can face particularly high hurdles when accessing the products and services they require.
In Australia, the commercial card market is one example of how bureaucracy and legacy process have stifled access to important SMB financial services, despite a continued surge in banking innovation and digitization.
Oliver Kidd, chief executive officer at commercial card FinTech Archa, recently told PYMNTS that outdated application processes are a major turnoff for small businesses seeking credit and payments capabilities in the form of a corporate card, with significant negative consequences.
When conducting market research in preparation for the creation and launch of Archa on the Australian market, Kidd said his team discovered that the majority of small businesses surveyed – 57 percent – reported that they still use their personal credit cards, "mostly because either banks wouldn't approve them or it was too hard to apply."
"It's an outdated process," he said of the hoops small businesses have to jump through to obtain a small business credit card. "In order to have their application approved, the owners of these businesses often have to present themselves at the bank with their identity documents, sign multiple forms and then, generally speaking, they'll need to provide a personal guarantee."
The reliance on small business owners to physically enter a bank branch despite the progress made in online banking is frustrating to entrepreneurs, so much that Kidd said many small businesses simply decide to not obtain a credit card altogether.
Others can struggle to obtain approval for a card product because of the legacy requirement of a personal guarantee, despite advances in sophisticated credit underwriting.
"The traditional onboarding experience just doesn't work anymore," Kidd said.
For the small businesses that are able to obtain a commercial card product, Kidd noted that their offerings also suffered from a lack of innovation.
"People don't just want a physical credit card to swipe at the shops," he said. "They want an account that seamlessly integrates with their existing business accounts so that expense management can all be done in one central hub. They want more control over their expenditure, they want to know who is spending what and when, and more importantly, they want all of this information instantly."
An Innovative Landscape
While the sources of friction Kidd identifies point to potential missed opportunities for traditional financial institutions (FIs) to embrace digitization and automation in their small business commercial card operations, there has been significant innovation in Australia's banking market, which is enabling the sector to rise to SMBs' demands.
With so many opportunities to introduce value-added services to commercial card products on the back of transaction data and data integrations, open banking has played a particularly large role in elevating small business card products.
"The new open banking frameworks have allowed us to offer our product to businesses that would never have been able to access something like this in the past," said Kidd. He highlighted a range of additional opportunities for small business cardholders, including the capability to compare spend analytics to industry peers to understand whether a company is over-paying for a service or product.
The ability to analyze transaction data and integrate data flows with existing back-office platforms presents a clear value proposition for small businesses, but they aren't the only ones who benefit. According to Kidd, interacting with data in this way also elevates the ability for companies like Archa to elevate their underwriting processes, leading to lower costs for SMBs and lower risk for issuers.
The Opportunity For Banks
Open banking frameworks in Australia and other markets around the globe have opened up opportunities for third-party FinTechs to develop digital-native, agile financial products and services. The resulting competitive pressures may also spur traditional FIs to take a page out of FinTechs' book and embrace commercial card innovation, too.
In the meantime, Kidd said he is interested in not only arming small businesses with a payment tool, but also with a solution that can act as a "financial hub of a business."
This starts with enabling a small business to migrate away from relying on a personal credit card to make payments, an inefficient and sometimes risky strategy that can complicate financial management and limit business spend analytics capabilities.
But with open banking opening up possibilities for both issuers and small business cardholders, added value lies ahead for the industry, with companies like Archa exploring the use of machine learning and natural language processing to augment their offerings.
"There's a lot more value that a corporate card can bring beyond simply credit," Kidd said.