The Future of Commercial Banking

Most of the attention around bank digitalization has focused on the retail experience. Retail banks have readily embraced technology to enhance the customer experience. But commercial banking can catch up, complete with business insights that increase customer engagement and add real value. In doing so, a bank can elevate its position from trusted transactional banker to strategic business partner.

In the U.S., there were more than 32 million small-to-medium size businesses (SMBs) in 2021, according to the Small Business Administration. Collectively they create 1.5 million jobs annually, according to Fundera, citing SBA data; this is around 64% of total new jobs. But the stakes of owning an SMB are high: almost half fail within the first five years and 20% fail within the first year, according to the Bureau of Labor Statistics. Most failures cite cash flow as a major contributor to failure. Banks can and should do more to help.

With a wealth of transactions data at their fingertips, banks can help SMBs understand their cash flow and manage their liquidity better. But transactional data is only part of the story. If banks can access their customer data held on internal accounting systems, they can obtain a holistic view of cash flow, gain unique insight into how their customer’s business is running, and offer help exactly when and where it’s needed.

Bank customers are increasingly willing to share their data: 82% of SMBs say they are willing to share data with their primary financial provider, particularly in return for business benefits, according to FIS research conducted in 2022. Moreover, we found that 66% of SMBs are interested in trusted advisory services. The time is right for such services.

Technically, it is quite simple for a bank to orchestrate data flows. Over 64% of SMBs in the U.S. use accounting software, such as Quickbooks, Xero, Sage and a handful of others, minimizing the amount of integration work and number of interfaces needed. So how can banks help SMBs businesses survive and prosper?

The Ideal SMB Banking Overview
A combined view of transactional bank data and accounting data allows banks to help an SMB understand exactly how much cash it has now and whether it has sufficient liquidity to meet upcoming obligations.

Incorporating accounting data can pull in open invoices and bills combined with cash flow forecast to build an accurate picture of how money is flowing throughout the business and compute standard accounting ratios. Such information can give an SMB owner, most of which don’t have much knowledge of accounting, some valuable business insight into how their business is performing.

A snapshot of cash flows allows users to modeling future performance by using “what if” criteria. Users can set thresholds of a minimum cash position to eliminate financial shocks to the business. If cash shortfalls seem likely, the user can be prompted to transfer funds from account, consider credit options or arrange to speak with a banker.

Benefits for Banks
All of this information that’s available to the customer can also be accessed by a banker, who can help with financial decisions and offer advice. Although this may be an opportunity for a bank to sell products, the real benefit is to add value to the relationship and build customer loyalty.

With all the relevant information in one place, bankers can be better prepared for customer meetings and, if required, can meet customers where they are. With many bank branches being repurposed as advice centers, bankers can use tablets to review customer business plans either in branch, at a remote location or in a virtual meeting. Whatever the location, this is relationship banking at its very best.

Millennials are currently the largest group of bank customers, according to the American Bankers Association. In the wake of Covid-19, many have reflected on their career choices; some have launched new businesses and entrepreneurship is a goal for 56% of the cohort. These individuals have bank accounts, and many will need business banking either now or in future. They see little distinction between retail and commercial banking. Banks must acknowledge that the retail customers of today are the business owners of tomorrow.