Are You Giving Customers What They Value?

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How often do your bankers give customers exactly what they ask for — instead of what they really need?

Most bank executives say meeting customer needs and providing excellent customer service is their top priority. But that doesn’t necessarily translate into a customer-focused mindset in practice.

As changing external factors and heightened competition create new pressures on banks to expand their market share and find new paths to growth, a product-centric mindset that is mostly focused on selling businesses loans or lines of credit isn’t enough. Business leaders have myriad needs and are looking for trusted, personalized advice on everything from reducing their operating costs and minimizing fraud to improving cash flow. They’re not interested in listening to product pitches; they want help making smart decisions for their businesses.

But bankers can’t make these recommendations and create value that matters to their customers until they understand the situation. Just like physicians, bankers need to diagnose before they can prescribe. And for many of your employees, this will require not just new skills but a mindset shift as well.

Beyond the Product Lens
Bankers often struggle to deliver a consistent, holistic experience for customers across channels because they run up against a powerful mental barrier: an aversion to being viewed as “selling.” One bank employee told us that the word sales “makes me buckle at the knees.”

This negative association with selling surfaces in a number of ways, from a reluctance to call customers to a lack of commitment to activities that could increase the bank’s wallet share. Bankers may know they should be able to do more business with certain accounts or that they “need to knock on more new doors,” but they don’t do the things that will make a difference. Instead, they have a conversation or send an email, run through all the products and leave it at that.

Many bankers have personal relationships with the business owners they work with; the last thing they want to do is badger them into buying something. The question is, why do they equate sales with product pushing?

The answer is simple: Many banks haven’t moved beyond a product-focused lens. Metrics such as number of products per customer aren’t driven by what the customer needs, they’re simply goals the banker needs to hit.

But the banks and bankers that are successfully growing and building loyal customer bases approach selling as a higher level of service. Instead of thinking they’re intruding or bothering the customer, these bankers operate by the mantra, “If I can make a difference, then I have an obligation to help.” As a result, they ask good, relevant questions and help the customer make purchasing decisions that are in the customer’s best interests.

Differentiating the Experience
Especially in times of economic uncertainty, bankers need to feel equipped to talk to customers about their businesses and concerns, probing deeper to understand what is most important to them and what will create the most value for them. Often, customers don’t know what they need until they’ve had the chance to talk it through. While it’s natural to be excited about sharing a new product, the real value bankers add for customers is by creating a space for that conversation and serving as true partners and consultants.

As customers engage in more face-to-face interactions, bankers have to make those experiences count. When they have the opportunity to talk with customers, they need to not only help with the immediate problem, but also find out what other issues they might be able to assist with.

This means your bank needs to have a common language across the institution, so customers have a seamless, consultative experience at every touch point. Customers aren’t receiving the best service if their banker doesn’t understand where they are, what’s next and how the bank can help achieve their goals. Everyone in the bank needs to understand this. Invest in developing your people and ensure managers know how to use positive coaching to reinforce this mindset shift.

Whether it’s in commercial or retail banking, your customers have pain points and questions. Your bank’s job is caring enough to ask. Commit to doing the right thing for your customers. Your bankers will have greater purpose in what they do, and they’ll consistently be able to create more value — for their customers and for the bank.

This piece was originally published in the second quarter 2023 issue of Bank Director magazine.

The Big Opportunity in Small Business Lending

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In the years following the financial crisis of 2007-08, bank lending to small businesses slowed considerably, due in large part to the economic fallout and new financial regulations. At the same time, nonbank lenders began to rapidly fill the small business lending void left by banks struggling with their own risk appetites and new regulations.

According to recent research, 32% of small businesses applying for loans today do so through nonbank lenders, up from 24% reported in 2017. This data seems to suggest a significant and accelerating shift in how small businesses seek access to capital. It also highlights a significant opportunity for today’s community banks to retake small business lending market share.

Bankers are risk managers by nature, which often leads them to shy away from small business lending that is sometimes seen as riskier, especially in times of economic stress. Community banks may also lack the proper technology to efficiently process these transactions and achieve the necessary return on investment. Banks are cash flow lenders; for the most part, they prefer to spread financial statements similarly to as they do with their larger, more profitable CRE loans. This entails extracting and organizing data from borrowers’ financial statements and tax documents into a bank’s overall financial analysis system, which enables the institution to make better, more accurate credit decisions and identify risks.

However, spreading financials on small dollar business loans drastically reduces or eliminates profits. Moreover, most banks lack adequate credit data for their small business customers. Many banks hesitate to lend based solely on information from FICO or FICO Small Business Scoring Service , as they sometimes do not accurately assess business risk or repayment ability.

In response, small businesses have increasingly turned to nonbank lenders that provide a frictionless experience with end-to-end technology. Additionally, this robust technology also tends to provide a better customer experience and a much faster loan approval process.

Some nonbank lenders have also leveraged new or alternative data and scored loan models. This allows them to serve many previously marginalized or ignored business owners. Luckily, today’s community banks can leverage similar models and help expand financial access for many underserved borrowers in their local communities, reaching untapped markets while still properly managing risk.

With over 33 million small businesses in the United States, there is a tremendous opportunity for community banks to take back market share and capitalize on their relationship business model. Bankers should evaluate modern lending platforms that support an end-to-end process to optimize efficiencies and provide a positive customer experience — and do so cost effectively. Additionally, data and scoring models that are designed to support small dollar lending provide community banks with an opportunity to quickly expand their small business lending portfolio while meeting customer needs and mitigating risk.

Community banks are perfectly positioned to leverage their relationship business model and grow small business lending. Small business owners should have the choice of working directly with their local bank. Small business lending provides community bankers with a new revenue opportunity, a diversified loan portfolio and access to additional deposits. As nonbanks continue to disrupt small business lending, it is essential for bankers to modernize their small business lending technology and strategies to capitalize on this untapped market.

In the Search for Efficiency, Rethink Cash Management

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Despite the rise in digital payment options, cash persists as a payment method in the United States. Between October 2019 and October 2021, circulating currency in the United States increased by $423 billion, according to the Federal Reserve Bank of San Francisco. Also, cash accounted for 20% of all payments and continues to be a primary option for a substantial portion of the population.

Even as cash continues to be a vital payment tool, handling it is a headache for banks. Branch managers manually count, log and balance cash, which leaves banks vulnerable to safety issues and cash leakages due to criminal activity or miscalculations. Bankers must evaluate their cash management processes to save time and money.

What is often overlooked, or taken for granted in the cash management process, is the time it takes a bank to move, count and manage cash. Every time cash moves — from the vault to the teller, teller to teller, or teller to vault — it must be counted and balanced. If even $1 is missing, staff can spend hours counting and recounting.

Cash handling costs are rising and are estimated to account for 5% to 10% of bank costs, even as cash use declines, according to McKinsey & Co. Why? Cash distribution, maintenance and processing require expensive manual labor. Depending on the institution, a single branch will need to handle hundreds of transactions and teller-to-teller exchanges a day and, of course, opening and closing counts of cash. From cash vault to end-of-day tally, the process relies on the precision and accuracy of each count. Say your branch has a counting error. This single error from manual labor can add significant time to your staff’s day. Additionally, manual cash handling is vulnerable to counterfeit currency, tracking errors and theft.

Banks are examining every expense for greater efficiencies as the economic environment potentially turns. It’s critical that they assess the technology budget and balance sheet to ensure their investments go as far as possible. There are a proliferation of cash counting and handling processes that banks implement, but these tend to only oversee one part of the overall cash management process. Banks also often grapple with outdated technology, which is vulnerable to outages or cannot automate simple tasks.

Harnessing technology can eliminate redundancies, automate manual processes, reduce labor expenses and streamline workflows. These changes can also improve staff retention at the crucial frontline level, a huge issue for banks. In a competitive employment environment, eliminating inefficiencies and creating a positive work environment is a priority for banks looking to retain staff. Rather than counting cash by hand or dealing with an unexpected recycler outage, bank executives can leverage solutions that enable their tellers, frontline branch staff, and regional managers to worry less about cash management and focus more on customer experience.

Economic uncertainty means banks need to make tough cost-cutting decisions while thinking about investing in operational efficiency and aligning innovation. To meet employee needs, banks should transform each level of branch operations, especially in the cost centers, such as cash handling. Reimagining branch operations and improving the employee experience and bank operations through automated technologies can help unlock new workflows and solutions.

Fortunately, strategic investments in high-return technology with advanced capabilities can offer immediate benefits. Automating labor-intensive processes and increasing cash visibility at enables banks to save time, leverage scarce resources and focus on creating unique customer experiences, while eliminating pain points and redundant work. As banks further automate mundane tasks, they can optimize staffing levels and maximize profits while serving customers better. By implementing specialized technology to count, dispense and manage cash, banks can improve their accuracy and reduce the costs associated with manual cash handling — ensuring that staff are using both the procedures and technology that best meets clients’ needs with the greatest efficiency.

The Opportunity in Business Payments

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Nonbank competitors challenge the way banks serve small business clients, who are always on the hunt for efficiency. Banks that address key pain points for those customers have a better shot at winning their business — and their loyalty, says Derik Sutton, chief marketing officer at Autobooks. Payments are a particular obstacle, he says. Financial institutions that can help their small business customers simplify accounts receivable and payable can lock in those relationships in 2023.

Topics include:

  • Competitive Pressure From Apps
  • Overcoming the Cash Flow Gap
  • The Advantage in Payments

Why Banks Should Offer Real-Time Payments for Business Customers

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Faster payments are the next phase of the digital revolution in banking. The race toward real time is well underway — more than 200 U.S. financial institutions already send and receive real-time payments. Those that cannot do so must start soon or they will be left behind.

The rise of mobile and digital commerce has created a need for speed and certainty of payment. Bank customers want to be able to pay whoever they want, whenever they want, using a device of their own choosing. But in practice, there are many flavors of fast. It’s important to clarify exactly what we mean by real-time payments and faster payments.

Real-time payments are payments that are initiated and settled almost instantly. A real-time payments rail is a digital infrastructure that facilitates real-time payments 24/7. A crucial characteristic of a real-time payments rail is that it is always available, bringing payments into line with a digital world that never sleeps. In the U.S., there are currently two real-time solutions:

  • The Clearing House has offered its real-time payments platform (RTP) to all federally insured U.S. depository institutions since 2017.
  • The Federal Reserve is currently developing FedNow, a new service that will enable individuals and businesses to send instant payments, due for launch in 2023.

Both real-time solutions are “open loop,” which means that the payment is connected to a bank account rather than a prepaid balance. This is important: It creates the potential for payments to reach every bank account in the U.S. and beyond.

Faster payments, such as Nacha’s Same Day ACH, are payments that post and settle faster than traditional payment rails but not instantly. For example, both Mastercard and Visa offer push payment solutions that message transactions in seconds but do not settle as quickly.

In practice, all real-time payments are faster payments, but faster payments are not always real time.

Although many payments, such as mortgage installments, are non-urgent, the transformational potential of real-time for banks and their business customers is enormous. Real-time technology marks the biggest advance in electronic payments in 40 years and heralds a new era where payments can be an opportunity for banks to add real business value.

Connectivity. Banks can offer business customers access to a growing real-time network that offers uninterrupted transaction processing. But real-time payment also enables two-way messaging, including request for payment, payment confirmation, credit transfer and remittance advice. Each of these features removes friction and can enhance the relationship between companies and their customers.

Cash flow. Businesses can adopt “just in time” cash management and pay creditors exactly on time. In the U.S., 82% of small businesses that fail do so because of cash flow problems; real-time payments signals a new era of easier cash management. A real-time picture of its cash position allows a small business can be sure it can meet its short-term commitments, minimize borrowing and optimize its use of surplus cash.

Certainty. Real time account-to-account settlement allows business customers to have payment certainty and reduces payment failures, streamlining business processes to reduce costs and increase efficiency.

Innovation. With almost 60 million Americans participating in the gig economy and up to 90% of Americans considering freelance or consulting work, innovation allows people to be paid immediately for the work they’ve done. Real-time payment makes “day pay” a practical reality.

Customer expectations. The tech giants have redefined the customer experience. Real-time payments present a unique opportunity for banks to catch up with a fintech approach to business banking by coupling it with simplified account opening, accelerated credit decisioning and synced accounting packages.

Real-time payment processing is a pivotal innovation in banking that should be included in every bank’s digitalization strategy. But there’s a lot to consider. A payment never happens in isolation; it’s always part of a larger business workflow. Many mission-critical bank systems are batch based, so there will always be integration issues and challenges. Moreover, there are peripheral systems, such as fraud detection, that banks must choreograph with payment movements. And as real-time payments build momentum, banks should be prepared to manage burgeoning payment volumes.

Getting started in real-time payments is never easy, but it’s a lot easier with expert help. Banks should work with their payments partners and build a road map to success. Managed services can offer a fast route to industry best practices and empower a bank to start with a specific pain point — receivables, for example — and progress from there. But every bank must start soon, for the race towards real time is accelerating.

5 Compensation Approaches That Support Greater Board Diversity

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Boards are cultivating a more diverse slate of directors that includes different backgrounds, experiences and skills. In 2021, over 45% of new directors in the Russell 3000 were women. Directors of different ethnic groups also made steady gains. Moreover, bank boards are seeking specific skill sets such as risk, cyber and financial markets expertise to supplement traditional CEO and CFO disciplines.

Attracting and retaining a new breed of diverse directors, many of which are younger than traditional directors and may still be working, requires forward thinking. Boards with compensation programs that are unclear, overly restrictive or developed as a “one size fits all” program may encounter recruiting and retention issues. Just as director experience needs to be more diverse to oversee modern banking, director compensation practices must adapt and change to address varied perceptions and needs. Banks can take five actions to position themselves for greater success.

1. Ensure Compensation Programs are Up-to-Date.
Director pay has continued its upward trend after a brief hold during the pandemic. Furthermore, banks are adopting practices more consistent with general industry practices:

  • Consider a retainer-only approach. Eliminating meeting fees creates greater clarity around the total compensation a director receives while streamlining administration.
  • Grant restricted stock. Governance advocates and regulators alike consider full-value shares to be more appropriate for director pay, compared to stock options, since shares provide ownership without the potential for leveraged gains. The most common vesting period for equity retainers range from immediate up to one year after grant.
  • Eliminate “old school” practices. Certain practices may carry the perception that a bank board is out of touch with market practice and governance norms. These include director retirement and benefit programs, meeting fee reductions for committee meetings held on the same day as the board meeting or for meetings held “telephonically,” reimbursement of spousal travel and paying executives board fees.

2. Consider Pay Mix and Timing.

  • Coordinate cash and equity vesting. Governance advocates encourage companies to pay a minimum of 50% of board fees in the form of equity. In most cases, equity compensation is welcomed by directors but taxes can be an issue. Timing cash, such as board and committee retainers, alongside equity award vesting is helpful; this is especially true if open window periods to sell equity are limited throughout the year.
  • Consider immediate vesting. Even a one-year vesting can create unexpected tax consequences with share price movement. If a bank’s share price increases substantially over the vesting period, the tax liability at vest may be substantially higher than planned. This tax liability can create a burden on directors, especially when combined with ownership requirements and sales restrictions.
  • Rethink long holds and other restrictive policies. Stock retention and ownership guidelines are the market norm. And while welcomed by shareholders, less prevalent practices such as mandatory deferral policies and other stock retention provisions that defer stock vesting until director retirement may receive pushback from candidates and reduce the potential pool of directors.

3. Review Equity Grant Levels, Stock Ownership Guidelines.
Banks should model stock ownership requirements to ensure that directors can reach the guidelines through the compensation program within the prescribed timeframe and on an after-tax basis. Rarely are directors expected to pay out-of-pocket to serve on a public company board. If the annual equity retainer alone is deficient, banks can grant sign-on awards to give new directors a head start in achieving the ownership guideline and to support recruiting efforts.

4. Provide Programs That Let Directors Manage Cash Flow.
Board diversity may lead to varying financial objectives, which banks can address by implementing choice programs that are flexible in form of payment and tax timing.

a. Stock programs that allow directors to receive cash retainers in stock. These programs typically allow a bank to pay cash board retainers as shares. Some provide a “kicker” incentive of 10% to 20% to directors that opt for stock over cash.

b. Voluntary deferral programs. These programs may include voluntary deferrals of cash retainers and/or equity awards that may be held in company stock, an interest bearing account or in diversified investments.

5. Employ More Mindful Recruiting Efforts.
Executive recruiters and board-directed searches often resort to drawing from the same limited pool of sitting board members to fill new seats rather than broadening to other sources of talent, such as women executive groups, ethnic chambers of commerce and affinity groups. A larger recruiting pool places less pressure on the board compensation program.

Board compensation programs can act as an enticement or deterrent when banks are recruiting diverse candidates. Banks put themselves in the best position when compensation programs are clear, market-based and provide flexibility for varying life stages and financial positions.

FinXTech’s Need to Know: Cash Flow

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This article is the second in a series focusing on small business banking financial technology. The first covers accounts payable technology and can be found here.

There are 33.2 million small businesses in the United States. With a looming recession, many may soon be looking for ways to lower their budgets, be it by reducing staff, cutting back on hours or even terminating contracts with other vendors. The median small business holds only 27 days of cash on hand, according to a 2016 study from the JPMorgan Chase Institute — an amount that could be challenged by the changing economic state.

Financial institutions should see cash flow management as an opportunity to provide their small business customers with integrated products and services they used to go elsewhere for.

Business owners decide where, when and how to invest and spend revenue after tallying bills, employee hours and balance sheets. They now have modern tools and ways to leverage third-party softwares to automate their balances.

Banks can provide this software to their small business customers, and they don’t have to start from scratch: They can turn to a fintech partner.

Here are three fintechs that could satiate this software need.

Boston-based Centime launched its Cash Flow Control solution in partnership with $26 billion First National Bank of Omaha in 2019. Centime gathers accounts receivable and accounts payable data to provide accurate, real-time forecasts to business customers. Any bank can integrate the solution as an extension of their online banking or treasury management services.

Banks can profit off of these cash flow products, too. Small business customers have access to a direct credit line through the analytics platform. And in a still rising interest rate environment, expanding the lending portfolio will be crucial to a bank. Banks that offer Cash Flow Control to their business customers can play a strategic role in their clients’ cash flow control cycle, gain visibility into their finances and provide streamlined access to working capital loans and lines of credit.

Centime states that it works best with banks with more than $1 billion in assets.

Cash flow solutions can also provide essential insight into current and projected business performance for a bank’s own purposes. Less than 50% of banks said that not effectively using and/or aggregating their data was one of their top concerns in Bank Director’s 2022 Technology Survey. Data segmented into business verticals could shed light into what businesses need from their banks and when they need it.

Monit from Signal Finance Technologies is another cash flow forecasting and analytics solution available to small businesses. Monit aggregates data from the small business’s accounting software, like QuickBooks, Xero or FreshBooks, along with data inputs from the business owner. The projections are dynamic: Business owners can dive deeper into exact factors that influence anticipated dips in cash flow. They can also model alternative scenarios to find ways to avoid the shortfall.

Using the projections, Monit provides business owners with suggestions for the future success of their business, such as opening a new line of credit or slowing down on hiring.

Accessing business data and the third-party apps that house it is another way to strengthen a bank’s understanding of their business clients, as well as indicate how, where and when to help them. UpSWOT’s data portal could be the right solution for a bank looking to gather better data on their business customers and connect with the third-parties that house it.

UpSWOT uses application programming interfaces, or APIs, to collect data from over 150 business apps and provide key performance indicators, marketing data and actionable insights to both bank and business users. It can even notify a bank about a small business client’s activity such as new hires, capital purchases like real estate or vehicles, payment collection and accounts receivable, financial reporting and tax information.

The upSWOT portal also creates personalized marketing and sales dashboard, which bankers can use to anticipate their business clients’ needs before their balance sheets do.

Essential to every single one of the more than 30 million small businesses in the U.S. is cash. And without the ability to effectively forecast and manage it, these small businesses will fail. Banks can help them flourish with the aid of fintech partners.

Centime, Monit and upSWOT are all vetted companies for FinXTech Connect, a curated directory of technology companies who strategically partner with financial institutions of all sizes. For more information about how to gain access to the directory, please email [email protected].

What to Look for in New Cash and Check Automation Technology

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Today’s financial institutions are tasked with providing quality customer experiences across a myriad of banking channels. With the increased focus on digital and mobile banking, bankers are looking for ways to automate branch processes for greater cost and time savings.

This need should lead financial institution leaders exploring and implementing cash and check automation solutions. These solutions can improve accuracy, reduce handling time and labor, lower cost, deliver better forecasting and offer better visibility, establish enhanced control with custom reporting and provide greater security and compliance across all locations, making transactions seamless and streamlining the branch experience. However, as bank leaders begin to implement a cash and check automation solution, they must remember how a well-done integration should operate and support the bank in its reporting and measurement functions.

Ask Yourself: Is This the Right Solution?
When a bank installs a new cash or check automation solution, the question that should immediately come to mind for a savvy operations manager is: “How well is this integrated with my current teller software?” Regardless of what the solution is designed to do, the one thing that will make or break its effectiveness is whether it was programmed to leverage all the available functionality and to work seamlessly with the banks’ existing systems.

For some financial institutions, the question might be as simple as: “Is this device and its functionality supported by my software provider?” If not, the bank might be left to choose from a predetermined selection of similar products, which may or may not have the same capabilities and feature sets that they had in mind.

The Difference Between True Automation and Not
A well-supported and properly integrated cash automation solution communicates directly with the teller system. For example, consider a typical $100 request from a teller transaction to a cash recycler, a device responsible for accepting and dispensing cash. Perhaps the default is for the recycler to fulfill that request by dispensing five $20 notes. However, this particular transaction needs $50 bills instead. If your cash automation solution does not directly integrate with the teller system, the teller might have to re-enter the whole transaction manually, including all the different denominations. With a direct integration, the teller system and the recycler can communicate with each other and adjust the rest of the transaction dynamically. If the automation software is performing correctly, there is no separate keying process alongside the teller system into a module; the process is part of the normal routine workflow within the teller environment. This is a subtle improvement emblematic of the countless other things that can be done better when communication is a two-way street.

Automation Fueling Better Reporting and Monitoring
A proper and robust solution must be comprehensive: not just controlling equipment but having the ability to deliver on-demand auditing, from any level of the organization. Whether it is a branch manager checking on a particular teller workstation, or an operations manager looking for macro insights at the regional or enterprise level, that functionality needs to be easily accessible in real time.

The auditing and general visibility requirements denote why a true automation solution adds value. Without seamless native support for different types of recyclers, it’s not uncommon to have to close and relaunch the program any time you need to access a different set of machines. A less polished interface tends to lead to more manual interactions to bridge the gaps, which in turn causes delays or even mistakes.

Cash and check automation are key to streamlining operations in the branch environment. As more resources are expanding to digital and mobile channels, keeping the branch operating more efficiently so that resources can focus on the customer experience, upselling premium services, or so that resources can be moved elsewhere is vital. Thankfully, with the proper cash and check automation solutions, bank leaders can execute on this ideal and continue to improve both the customer experience and employee satisfaction.

Fundbox: Friend or Foe

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For small businesses and freelancers, successfully performing work for customers and clients is only half the battle. Oftentimes, businesses wait up to 90 days to receive payment for their outstanding invoices. This delayed cash flow can create a variety of problems, especially when it comes to covering overhead expenses like rent and payroll.

That’s why Eyal Shinar developed the Fundbox software service, to help small businesses fix their cash flow problems as it relates to outstanding invoices. Fundbox is the leading cash flow optimization platform for small businesses, and who better to start a fintech company focused on this problem than someone who learned it at his mother’s knee? Shinar’s mother was a small business owner, so growing up he saw the pain and frustration that delayed payment of invoices can cause. According to a recent report, 82 percent of small businesses fail due to poor cash management. Where some see problems, others see solutions, and that’s where Fundbox comes in.

The process is straightforward. Business owners simply connect their existing accounting software to Fundbox and submit their outstanding invoices for immediate reimbursement. The business owner incurs a small fee for this service and they are given up to 24 weeks to pay Fundbox back.

For banks looking to offer new or better services to small business clients and freelancers, though, is Fundbox a good partner? Let’s look a little closer.

THE GOOD
Small business accounts are a much coveted group for banks, so providing new tools to improve service and/or relationships with this group should be of interest area to most any financial institution. The fact that Fundbox already has some traction in the small business space should be a good indicator for banks that the service they provide—instant cash flow—is a needed service for this group.

Once a small business owner submits an invoice to the Fundbox platform, they are typically paid within one to two days. Fundbox connects easily with most existing accounting platforms that small businesses are already using, such as QuickBooks, Freshbooks, Xero, Wave and Sage One, so there is very little to do in terms of importing data. Fundbox connects with a few simple clicks and pulls any outstanding invoices that business owners might want to turn into cash. Also, when the user signs up for their account, Fundbox uses big data and algorithms to quickly determine the consumer’s financial health rather than putting them through a lengthy application and approval processes.

The pricing model is simple and transparent. For an invoice of $1,000, the fee is $48 per week over 24 weeks, or $89 per week over 12 weeks. Fees are reduced if the business pays back what it owes prior to the deadline, which is a good incentive to keep Fundbox’s own cash flow looking good, although they have no shortage of funding—another point that might give banks some comfort in partnering with the company.

THE BAD
While the Fundbox fee structure is quite straightforward and transparent, it’s also relatively expensive and can really add up over time, especially for businesses that regularly choose the 24-month financing option. After you do the math, the annual percentage rate for Fundbox repayments can range anywhere from 13 percent to 68 percent. Fundbox also places a $100,000 limit on invoices that it will fund, so it isn’t an option for companies seeking to turn accounts receivable for amounts larger than that into cash.

While Fundbox is compatible with most of the common accounting software mentioned earlier, small businesses that use less common accounting packages or Excel spreadsheets can’t utilize its service. Other drawbacks are that Fundbox doesn’t provide cash for past-due invoices, and the approval process for credit limit increases can take some time. So while the service is helpful in many use cases, it certainly doesn’t match every situation. Finally, Fundbox is rolling out additional credit products as well, which could increase its presence as a possible competitor in the banking space.

OUR VERDICT: FOE
Fundbox offers an important service to small businesses and entrepreneurs, and does so more conveniently than most banks do today. At a time when so much emphasis is being placed on the customer experience, banks should be taking notice of this heavily-funded bank alternative. If an entrepreneur has outstanding invoices and needs cash to keep the lights on, their only option with traditional banks is to apply for a small business loan, or to go to their credit card company, which charges even higher rates than Fundbox. Furthermore, between the application process, credit checks and agreeing upon collateral, it can be weeks or months before businesses see a penny of the cash they need. For this reason, I applaud what Fundbox is doing, and I think it is certainly a —friend’ to many entrepreneurs in their times of need.

As Fundbox encourages more and more small business owners to come to them for cash, though, this obviously chips away from the bank’s importance and its relationship with their small business clients—a relationship they certainly don’t want to lose. And to date, Fundbox cannot boast of any existing bank partnerships or list banks as an area of interest. Of course, if this was to change, we might reconsider our foe designation.

In the meantime, banks would be wise to understand why entrepreneurs are using services like Fundbox, and how they might better address this particular need, whether it’s partnering with fintech companies, investing in new solutions or building them internally. In short, business owners have enough things to worry about, and getting paid on time doesn’t have to be one of them. Who can blame small business owners for looking outside their banking relationship for help?