The Big Deal With Small Businesses — How Banks Can Better Serve This Critical Segment

Approximately 99.9% of businesses in the United States are classified as small businesses, according to the Small Business Administration. Whether these organizations have hundreds of employees or are sole proprietorships, they’re all being forced to navigate a challenging landscape that includes high inflation costs and interest rates, supply chain issues and difficulties attracting and retaining reliable support.

Small businesses have historically leveraged piecemeal or ill-fitting solutions to manage their finances, cash flow and payments. That typically leaves them with an incomplete view of their financial situations, takes too much time from running the business and increases overall frustration levels. Banks can and should offer the tools and resources necessary to help businesses better manage their finances, supporting a critical segment while generating new sources of revenue.

Most small businesses could significantly benefit from stronger data integration that can provide a clear view of current and future financial positions. They also need better cash flow management tools such as financial reporting and automated bookkeeping capabilities. Banks that can provide these capabilities and deliver actionable alerts with relevant solutions and insights will be well positioned to strengthen engagement and loyalty.

Payments are another critical piece of the puzzle. Small businesses are grappling with the emergence of real time payments, which poses both potential advantages and disadvantages. On a positive note, businesses can benefit from faster paychecks and supplier payments, easier expense reconciliation and faster production and delivery to consumers. On the other hand, near-immediate payments processing eliminates float, meaning businesses can no longer take advantage of a few additional days of interest income on idle cash. Such factors will force small businesses to manage their cash more carefully.

Small businesses also need more sophisticated digital payment capabilities, such as the ability to accept digital payments from invoiced customers, initiate real-time payments and use a smartphone to accept in-person, contactless payments. If a business’s financial institution fails to offer these options, it will look to third-party payments solutions such as PayPal, Square and Venmo instead. The inability to provide these services can cause banks to miss out on revenue as well as significant transaction volume and an opportunity to build customer loyalty and engagement.

As the gig economy continues to grow, banks should also consider ways they can meet the needs of gig workers. These side hustles often come with unique financial intricacies and certain limitations, but they also present traditional institutions with opportunities to support these workers. Saving for retirement without a traditional 401(k), finding medical coverage and filing taxes are among the challenges sole proprietors must consider and navigate. Budgeting and cash flow management are especially critical to these individuals as their income is likely to vary over time. Offering advisory and consultative services can help institutions establish loyalty and trust among this underserved segment.

Prioritizing technology partners that offer platforms built on modern, cloud-based infrastructures can enable banks to effectively meet these needs. Leveraging these platforms provides the flexibility and extensibility needed to customize and launch solutions and innovations that better serve users.

As small businesses continue to navigate a tumultuous economy, banks should prioritize their financial needs and concerns more than ever. Those banks that embrace the strategies and technologies necessary to provide these businesses with the tailored offerings and support they need will be well positioned to gain new customers, add new sources of revenue and help power local economies across the country.