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SMALL BUSINESS BANKING: A $56.9 BILLION OPPORTUNITY FOR THE TAKING
2
Small businesses are the hottest under-served market segment, offering outstanding revenue
potential for financial institutions. Historically, small businesses have been overlooked as
their needs more closely aligned with consumers, so retail banking services seemed to fit
their needs. However, now that small businesses have evolved into tech-savvy customers
expecting more product sophistication for which they will pay, they are a segment for
opportunity. This revenue opportunity has not gone unnoticed as non-bank offerings are on
the rise to attract these customers. To compete, financial institutions are emphasizing their
unique capabilities for security, broad solutions and the ability to serve as the single source
provider for all financial needs a small business would want.
The first hurdle many financial institutions face when
looking to better serve small businesses is figuring
out exactly what a small business is and how to create
value that resonates with this segment. Is it more like a
high-end consumer? A low-end commercial business?
Something else?
The U.S. Small Business Administration (SBA) uses a
fairly generic definition of a small business, capping it
at businesses with 500 employees or less (according
to this definition, 99% of U.S. businesses are small).
The SBA also says the 28 million small businesses in
the U.S. today account for more than half (54%) of
all U.S. sales and more than half of all U.S. jobs (55%),
proving that small doesn’t always mean slight when it
comes to contributing to the overall economy.
Financial institutions define small businesses a bit
differently. While some do consider the number of
employees, the vast majority use revenue for size, with
about 75% pegging a small business as one with less
than $10 million in revenue and the rest (25%) using
$20 million in sales as the threshold.
Unfortunately, such general descriptions fail to capture
the unique characteristics and banking needs of small
businesses. Does a 10-person startup with less than
1 WHAT IS A SMALL BUSINESS REALLY?
$5 million in sales have the same banking needs as
a 30-person business that’s brought in just under $5
million in sales for the last eight years? Generalities
like this lead many financial institutions to overlook
an opportunity in serving this segment. A better way
is to take a more in-depth look at some specific small
business owners to understand exactly who they are
and the banking challenges they face.
EXECUTIVE SUMMARY
Small Business Banking: A $56.9 Billion Opportunity for the Taking
3
SMALL BUSINESS QUANDRIES:OPPORTUNITIES FOR FINANCIAL INSTITUTIONS
SALMA: MEDICAL OFFICE MANAGERConsider Salma, a medical office
manager for a suburban dental
office. Salma uses everything
from a smartphone and iPad to
a laptop/desktop throughout
her busy day. She is responsible for enabling all of
her patients’ check and credit card payments, as
well as for paying suppliers for ongoing services and
deliveries. She oversees employee payroll and wishes
she had a good option for implementing direct
deposit.
In terms of banking services, she currently uses
online banking to see current balances, view positive
pay exceptions and make electronic payments. Still,
she finds most of the financial reports she can access
online challenging to work with and difficult to drill
down to find the information she needs. For example,
she would love to be able to generate reports and
views to present to the practice’s partners at their
monthly status meetings, but sees no easy way to do
that currently. What she needs is a clear picture of
current cash flow and future spending to address the
needs of the business in a timely fashion.
ALEX: CUSTOM FURNITURE MAKERAlex, on the other hand, is a
one-man show. He handles his
furniture making business in his
spare time, but is itching to quit
his day job and get to the next
level. Right now, however, he has little time to spare
and just wants to be able to manage his business
quickly and efficiently — without getting bogged
down in frustrating, administrative-level tasks.
In terms of banking services, he’s a big fan of
anything that shaves off time spent away from
building furniture, and since he’s an avid smartphone
user, he especially appreciates mobile banking and
easy-to-use features like remote deposit capture. As
he balances his day job, his business and his family,
he looks to his bank to provide up-to-the-minute data
on where he stands, including checking and savings
balances and credit card activity.
KEY TAKEAWAYSWhile both Salma and Alex run small businesses,
most financial institutions would have a difficult time
fitting them together into the same small business
profile. Financial institutions view people like Salma
as having more commercial banking needs, while
Alex seems to fall on the consumer end of the
spectrum. But that kind of categorization is far too
bank-focused and misses the big picture within small
business.
The real common denominator is simplicity. Small
businesses don’t want to have to think about their
banking. They see banking as just one of the many
functions they must perform each day. They are
constantly being pulled in many directions working
with suppliers, serving customers, managing
employees and manufacturing/selling their goods.
Small businesses need banking to be as simple and
efficient as possible so that they can use it as a tool
to gain better control and flexibility — to better run
their businesses.
While it may be obvious that each small business is
unique with its own set of banking requirements and
expectations, what’s less clear is how much time,
investment and infrastructure financial institutions
should put toward serving these varied small
businesses. In the end, few financial institutions
invest enough, primarily because they remain blinded
by the three myths of small business banking.
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The small business opportunity is real and it can be
lucrative, especially for forward-thinking financial
institutions that, much like today’s FinTechs, focus on
offering the value-added services that truly resonate
with small business customers Instead of considering
the small business segment as one size fits all, financial
3 RISK SEGMENTATION
MYTH 1: THEY’RE FINE
Many financial institutions don’t yet realize the extent
of dissatisfaction beginning to blanket their small
business accounts. Like every business today, small
businesses are being pushed into the digital world,
or in most cases, they are doing the pushing. Small
business owners’ tool of choice is a smartphone or
iPad, and they use it to get business done. Consider
how Salma (see page 3) seamlessly adds Facebook to
the options patients have for appointment reminders,
or how Alex engages with marketing and advertising
apps to schedule time-limited coupon deals.
Small businesses expect the apps they use — including
for banking — to be quick, feature-rich and easy-
to-use. They want real-time data, simplicity and
consistency across all channels, and if they don’t get it,
they’ll look elsewhere. In fact, small businesses are one
of the major customer segments currently propelling
the rise of FinTech companies. Rather than struggle
with something that doesn’t quite fit their needs, small
businesses are quick to adopt new technologies that
are easy to use and help them run their businesses
better.
And while small businesses as a whole aren’t that
vocal, they do tend to vote with their feet when their
needs aren’t being met.
MYTH 2: THEY CAN’T (OR WON’T) PAY
The typical perception of a small business is one that
continually operates on the edge, struggling to pay
its bills or make payroll — not one willing to pay for
banking services. But in reality, small businesses do
pay their fair share of banking fees.
Yes, the majority sign up for basic no-frills banking
plans and work hard to avoid fees for low balances
or excessive transactions, but they are also realistic
about what services they need and how much they
cost. They know how their businesses ebb and flow,
and when stepping up to a premium service makes
sense. They also readily pay for value-adds, when they
need them. The numbers don’t lie; the average small
business customer generates $451 in fees per year.
Small businesses don’t sit still. When traditional
financial institutions can’t (or won’t) offer what small
businesses need, they have no trouble signing on with
and paying a FinTech that can.
2 THE THREE MYTHS OF SMALL BUSINESS BANKING
MYTH 3: THEY’RE NOT WORTH IT
While some financial institutions realize small
businesses have varied needs and challenges and
that they can tailor their services to help, they still
sometimes write off small businesses as too small
to bother with. How much difference can small
businesses (and their average of $451 in fee payments
per year) really make to a financial institution’s bottom
line?
A lot actually. Barlow Research estimates that small
businesses represent a $56.9 billion annual revenue
opportunity for financial institutions. How? Millions
of small business are paying fees to not only their
banks, but also to FinTechs. In fact, a recent Aite study
indicated that 72% of small business are paying for
banking services.
Let’s consider a bank looking to serve their 100,000
small business customers. Assuming a somewhat
conservative 25% adoption rate of customers paying
$451 in fees per year would generate over $11 million
per year. If we use fee income numbers from Aite’s
monetizing small business research, which states that
18% of small business pay over $100 per month, then
we’re looking at over $21.6 million per year. Regardless
of which numbers and estimates you prefer, it’s
clear that small businesses represent a very big
banking opportunity — to banks that take the time to
recognize it.
BARLOW RESEARCH FINDS
35% OF SMALL BUSINESS
CLIENTS SAY THEY WILL
LEAVE THEIR CURRENT BANK
PROVIDER FOR A BETTER
DIGITAL BANKING OFFERING.
5
institutions need to uncover and then leverage various
small business personas like Salma and Alex. Then,
they can categorize the features each persona finds
most important and tailor their service packages to
suit. Most importantly, financial institutions need to
break down their siloed services into quick, easy-to-
use applications from which small business users can
pick and choose as their business grows and their
needs change.
Financial institutions should also look to offer a
“freetail” package. Start small business customers off
with a basic set of must-have features (similar to what
they get at no cost on the consumer online banking)
to get them using the service and realizing your
capabilities, but then offer higher-level value-added
services when they are ready — and at an additional
charge.
Finally, financial institutions need to be the solution
to the small business banking services dilemma —
provide the right digital banking platform designed to
offer business customers the best possible customer
experience for their needs and business issues. A win-
win for both parties.
Contact ACI Worldwide to learn about how ACI
Universal Online Banker™ will enable you to generate
revenue from your small business segment.
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ACI Worldwide, the Universal Payments
(UP) company, powers electronic payments
for more than 5,100 organizations around
the world. More than 1,000 of the largest
financial institutions and intermediaries,
as well as thousands of global merchants,
rely on ACI to execute $14 trillion each day
in payments and securities. In addition,
myriad organizations utilize our electronic
bill presentment and payment services.
Through our comprehensive suite of
software solutions delivered on customers’
premises or through ACI’s private cloud,
we provide real-time, immediate payments
capabilities and enable the industry’s
most complete omni-channel payments
experience.
Americas +1 402 390 7600 Asia Pacific +65 6334 4843 Europe, Middle East, Africa +44 (0) 1923 816393
© Copyright ACI Worldwide, Inc. 2017 ACI, ACI Worldwide, ACI Payment Systems, the ACI logo, ACI Universal Payments, UP, the UP logo, ReD, PAY.ON and all ACI product names are trademarks or registered trademarks of ACI Worldwide, Inc., or one of its subsidiaries, in the United States, other countries or both. Other parties’ trademarks referenced are the property of their respective owners.
ATL6439 07-17
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