The Untapped Market Hiding in Consumer Bank Accounts

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Banks are sitting on an untapped opportunity to increase revenue and deepen relationships hidden within the data running through their ecosystem. It’s the small or micro businesses operating out of customers’ personal accounts — not through business accounts.

These small and micro businesses have a significant impact on the economy. According to the Small Business Administration, there are 31.7 million small and medium businesses; 81% have no paid employees. Additionally, there are 41.1 million self-employed workers, according to MBO Partners, redefining the needs for small business banking. According to a 2021 survey by gig economy platform Upwork, 59 million Americans performed freelance work in 2021 and contributed $1.3 trillion in annual earnings to the U.S. economy.

The scope of this untapped opportunity may surprise bankers, especially those without robust data analysis services. It impacts banks of all sizes. According to data pulled from transactions of two financial institutions by Segmint and recently presented at the Experience FinXTech Conference, 26% of U.S. consumer deposit accounts have ongoing business transactions and payments.

The research methodology involved examined data from a number of banks ranging from $600 million in assets to $15 billion. Here’s a snapshot of the findings at two community banks:

The $15 billion bank:
• 520,603 total customers
• 51,842 business accounts
• 136,476 consumer accounts with ongoing business transactions

That’s 2.6 times more “hidden” business accounts than actual business accounts.

The $600 million bank:
• 18,431 total customers
• 1,659 business accounts
• 5,625 consumer accounts with ongoing business transactions

That’s 3.4 times more “hidden” business accounts than actual business accounts.

These numbers represent an opportunity for banks to gain revenue by converting consumer accounts to business accounts and processing their transactions. It can also serve to deepen relationships with those customers, increasing product utilization and brand loyalty. But how do banks identify those accounts?

Robust data analysis of account holder activity is the best — if not only — way to identify small and micro businesses operating out of consumer accounts. Financial institutions are flooded with transaction data, the richest kind of data that can produce insights to target these consumers.

Merchant payment cleansing
Merchant payment cleansing is a critical tool to help banks better understand customer transaction behavior and model spend patterns. It is nearly impossible to indentify merchants in transactions without merchant payment cleansing translating the cryptic merchant name on the transaction description to the actual company name. For example, “JDF Revolving” on a transaction translates to John Deere Financing, categorized as business equipment lease financing. “VSA PUR ETI Financial Corp” is actually Honor Capital, which provides business financing services. Without merchant payment cleansing, banks won’t have that important information.

An FI can leverage this clean, categorized and tagged data to evaluate a more organized and select audience. The right partner should offer the bank a robust taxonomy and execute at tremendous speed and scale — all while protecting the privacy and security of account holder data. Knowing the actual merchant names and type of business allows a bank’s data analysis to dig deeper into things like: 

Spending With Competitors
Some identifiers of business spend with a competitor include:

  • Competitive loans for business and business insurance
  • Competitive equipment financing
  • Competitive invoice factoring
  • Competitive merchant services

In our analysis, the total of competitively processed deposits came in at more than $8.6 billion, representing 70% consumer and 30% business accounts. Competitors included Venmo, Cash App, Zelle, Ally Bank, Apple Cash, WorldPay, Square, Intuit Payment Solutions and more. 

Business Customer Receipts
Transactions with business-type receipts are also indicative of businesses operating out of consumer accounts. These can include:

  • Uber freight income
  • “Vendor to” transactions
  • “Supplier to” transactions
  • com marketplace recipients

Business Expenditures
The companies below are widely known, but they could have cryptic transaction descriptions that leave banks wondering. However, they’re easily identifiable after merchant payment cleansing.

  • Facebook advertising
  • Intuit Quickbooks
  • Etsy sellers fee
  • Shopify
  • Amazon Web Services
  • Calendly
  • Canva
  • HubSpot
  • Salesforce
  • Constant Contact

For more unknown brands, merchant payment cleansing becomes even more critical.

Banks can use these insights on transactions to deliver unique, personalized engagements with their customers and make data-backed decisions. With it, banks can:

  • Identify how big of an opportunity small business accounts are for them.
  • Decide if they should invest in small business loan origination service or payment technology.
  • Invest in group buying opportunities.
  • Develop integrations with platforms like Quickbooks, Shopify, Etsy and others.
  • Organize small business workshops around certain vendors to support your small business banking products

By targeting the right bank customers with products like business loans, business checking, equipment loans, and merchant services like remote deposit capture and payment processing to customers, banks can increase revenue, reduce competitive business spend and deepen relationships with their customers.

Uber Enters the Financial Services Market

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The online transportation network company Uber shook up the transportation service industry when it introduced the idea of ride sharing. It was a revolutionary development that allowed private citizens to use their vehicles to pick up passengers and earn money for doing so. The service quickly spread around the United States and the world. The company currently provides ride sharing services in 66 countries and 449 cities globally. Other ride sharing companies like Lyft have since entered the market to compete with Uber for customers and drivers. In order to attract and retain drivers Uber has introduced several services, one of which should serve as a wake up call for the banking industry.

Uber has partnered with GoBank to offer business checking accounts and debit cards that allow drivers to get paid immediately instead of once a week. The account functions just like a regular business checking account, and in addition to collecting instant payments users can transfer funds, pay bills and deposit funds directly from other sources. Drivers can add cash to their account for free by stopping into any Walmart that has a GoBank location or by paying a small fee at any participating 7-11, Rite Aid, CVS or Walgreens. Drivers can even order paper checks for $5.95 from GoBank.

The service is offered only in the United States for now, but Uber has said it wants to eventually offer similar services to drivers around the world. The account fee is $8.95 a month but fees are waived for anyone who has initiated an instant pay transaction in the previous six months. Drivers love the fact that they can get paid instantly. Once the fee is added to the account drivers can access cash through a network of over 40,000 ATMs around the United States. The business checking account can also be a good way to keep track of Uber related driving expenses and track profits for tax purposes.

Uber picked the right partner to expand into financial services. GoBank is a subsidiary of Green Dot Corp., a financial services and technology company that says it is on a mission to reinvent personal banking for the masses. Green Dot pioneered the prepaid debit card business and is the leading provider of reloadable debit cards in this country. They also offer online mobile checking accounts that can be managed directly from the user’s smart phone. Green Dot has a relationship with Wal-Mart to provide prepaid debit cards and checking accounts to Wal-Mart customers. The company has marketed its products and services to people who had no previous relationship with a bank or were simply unhappy with traditional banking and wanted a more tech savvy banking relationship. Green Dot’s novel approach to providing banking services made it the perfect fit for Uber’s new instant pay process.

Uber is looking to provide other financial services to its drivers as well. It has a pilot auto leasing program underway, called Xchange Leasing, that is administered by an Uber subsidiary and offers its drivers leases on used cars, and permits them to drive unlimited miles and turn the car in with just two weeks notice. Some leases also include routine maintenance as part of the contract. Uber expects this will enable it to attract and keep drivers as they continue to expand and add services.

If all 400,000 or so Uber drivers in the United States switched their banking relationships to GoBank tomorrow it would not be a tremendous blow to the banking industry. The real threat to the industry is not in this one relationship but the fact that innovative technology companies like Uber are finding new aggressive ways to market financial services, and they are establishing relationships with those the industry has not previously served and do not care for the way the banking industry currently works. These companies are combing technology with financial services in a way that is making inroads with younger tech savvy consumers.

While Uber’s limited expansion into financial services probably won’t keep many bankers up at night, the marketing approach behind it is definitely a potential problem. If tech savvy companies that are popular with millennial consumers begin to aggressively offer financial services offer to their employees, associates and customers—many of whom are millennials—traditional banks could have a hard time building a relationship with that generation of consumers.

Community banks have always had to compete in a marketplace crowded with other banks and credit unions. They will find themselves increasingly competing with technology companies whose product just happens to be financial services. Banks are going to have to change their approach to conducting business and marketing their services to the next generation of consumers to maintain market share and grow their customer base.