The Blurred Lines of Small Business Banking

Credit unions with assets at approximately $5 billion and below are traditionally considered to be within the “community banking market.” Historically, they have focused on their communities through retail banking, local experiences and supporting small business owners to help them achieve their dreams. However, many credit unions have struggled to serve small to medium sized businesses (SMBs), as they are a vastly diverse group with varying industries, needs, income and maturity levels represented.

Now, we are seeing a shift in the strategy. Credit unions are expanding their markets and services. They are trying to attract larger business, with more sophisticated accounting packages. This is further driving the need for banking services and blurring the line between retail, small business and a full, robust cash management solution.

What Is Retail Banking?

Also known as consumer banking, retail banking focuses on the individual consumer’s needs. An account holder needs to pay an electric bill? No problem. Deposit that birthday check from grandma? Done. Ultimately, retail banking is what most people think about when they hear the word “banking.”

Previously, many small businesses and sole proprietorships would hide out in an institution’s traditional “retail banking solution.” It didn’t quite fit their needs, but it was less costly and most business owners could easily access it via their computer.

What Is SMB Banking?

An increase in the complexity of business owners’ needs leads us to SMB digital banking. Think of it as retail banking, plus a series of entitlements, complete with ACH/wire capability and approvals. In actuality, it is a bit more robust than that, but for the sake of this example, I have simplified it.

What Is Cash Management?

When even further complexity is needed, organizations turn to a cash management solution. Cash management refers to the collection and managing of the business’ cash flows. This includes, but is not limited to, predictive reporting on cash coming in and out, the ability to access multiple addendums, and the ability to streamline payments/collections. Necessary in a large corporation, these services are often overlooked or can prove to be too costly for the smaller businesses.

But, what if a small business could access these tools earlier? Would it provide the additional leverage and scalability they need to propel their venture forward? Could it accelerate their growth?

Now, the lines are beginning to blur. What was once three distinct categories is now becoming a universal business need. According to a recent study conducted by JP Morgan, most businesses already doing their banking online but still have a mix of complex cases that require in-person or phone contact.

As small businesses demand more from their banking experiences, community banks and credit unions will need to shift upmarket in their feature set to remain relevant.

How?

Ensure your chosen technology partner is assessing this changing market and is preparing for the future. Banking, especially digital banking, must evolve in order to address the growing needs of the advancing business market. It is vital to work with a provider that both understands that the small business segment is growing and is prepared to support it.

Michael Abare is Principal Product Manager, Digital Business Banking for Finastra in Austin, Texas.