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.

How TCF Financial Reinvented the Customer Experience

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deposit-6-15-18.pngIn the spring of 2015, new leadership took over TCF Financial Corp., based in Minneapolis, and set about a course that would reshape the bank from the inside out.

At that time, the bank was in the midst of rebranding itself when Craig Dahl took over as CEO, and hired Tom Butterfield as chief information officer to usher in a new era of online banking that would keep the $23 billion asset bank on a level playing field with much larger competitors.

“We were not there. We had identified some pretty significant gaps in our market to our competitors,” Butterfield says. “Not the least of which was mobile remote deposit capture.”

That specific capability is coveted by both bankers and customers, who favor on-the-go functionality while banks enjoy the ability to increase their core deposits at a time when the competition for customer loyalty and their funds has increased sharply.

The bank went to market with a very specific request for information, or RFI, that solicited a very specific technological architecture that would remake its online user experience to be seamless between devices, but also adapt to its highly customized core technology and allow the opportunity for scale. While this limited the number of firms capable of handling the project, it also allowed the bank to customize its own technology. D3 Banking Technologies, based in Omaha, Nebraska, was one of the few who could handle the specific and unique request.

In the end, the D3 built an all-new online banking experience for TCF, which migrated 1.2 million accounts to the new platform over 15 months, from the time the board approved the funding for the project to complete migration, which they completed last fall.

D3, like other fintech partnerships, reinvented the TCF customer experience using application programming interfaces, or APIs, that function similar to a server at a restaurant. In TCF’s case, there are two layers of APIs that were necessary to adapt what Butterfield describes as a “highly customized” legacy core system that differs from typical core systems like those offered by Jack Henry, FIS or Fiserv. Butterfield described TCF’s core as “many many years old that doesn’t lend itself to interacting well with these modern technical platforms.”

The top layer is what D3 built and actually makes the experience, but there is a middle layer of APIs the bank built that connects the core, and also enables the bank to be able to customize and scale into other technologies, like voice commands (think Amazon Alexa or Google Home), and others.

The real-world implication of this new technology became clear when Apple rolled out its iOS 10, which swapped fingerprint recognition for facial recognition security. Mobile apps for megabanks like Bank of America were live with the new tech almost instantly. So was TCF.

“We feel like we can compete with the best banks in the country and the best platforms in the country,” Butterfield says.

Customers who had been migrated to the new system also had questions, Butterfield says. In anticipation of that transition, TCF put “digital ambassadors” into branches that offered customers—some of whom physically carried their laptops into the branch to get help—training on the new system, a scenario that represents the transformation that TCF put in place.

“The fact that our branches were a part of this story and part of this journey is a key piece of its success,” Butterfield says

Beyond the tech itself, Butterfield says the move to emphasizing technology inspired wholesale changes within the bank’s own culture. TCF literally tore down cubicle walls and put its IT and business staffs at the same table—often referred to as bench seating—reducing the barriers between the two wings of the bank that typically operate independently.

The integration fundamentally changed the way the bank works, making it unique compared to other banks who still hold true to traditional structures.

“That breaking down of silos is really key of how we got this done in 15 months,” Butterfield says.

Since the completed rollout in the fall of 2017, the bank has reduced payment processing costs by $1.3 million in the first year alone, and Butterfield said there has been a 400 percent increase in adoption rate, and a 250 percent increase in accounts opened by existing customers through the platform, and a reduction of 2.6 percent in checking account attrition, all signs the bank sees the tech has increased loyalty and potential for deposit growth, even as the largest banks grow their deposits over community and regional competitors.

“We’re definitely in the ball game,” he says.

Address Your Commercial Clients’ Technology Needs

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mobile-offerings-5-23-16.pngBy now, practically every traditional bank or credit union understands that they have to find ways to either compete with or embrace financial technology to attract and keep customers.

But it’s not just about retail customers, or millennials in particular, who have been raised to expect that technology should put just about every need at their fingertips. Fintech firms also have their eye on business customers, including a plethora of alternative financial services startups backed by investors and venture capitalists, lending money to small businesses that traditional institutions turn down–small businesses who then leave those institutions for good.

A 2015 World Economic Forum report estimates that marketplace lenders granted $12 billion to U.S. small and medium-sized businesses by the end of 2015. By 2020, annual U.S. volume could reach $47 billion, according to Morgan Stanley and Goldman Sachs.

How can a traditional bank or credit union compete? It can compete by providing products and services to make commercial customers’ lives easier, particularly using the mobile channel. This not only means offering mobile merchant services and treasury management solutions, such as remote cash deposit services, Check 21 compliant check images, expedited payments and interconnected vaults at merchant locations, but also an increasing array of cloud-based solutions.

Traditional banks and credit unions can even capitalize on the alternative lending movement. You name it, institutions can leverage any fintech solution that a business customer could possibly need. But how can institutions below the top 30 money center banks and large regionals—institutions with limited resources—offer solutions like that?

Let’s just look at one example at how challenging adopting fintech solutions on a piecemeal basis can be for one of those institutions: offering a mobile app for remote deposit capture. It’s seemingly a relatively simple app to offer, but to get that solution to market, an institution typically has to rely on its core processor to allow a third-party app developer to connect its solution to the core system. However, most core vendors do not want to open up their systems in real time for posting those deposits because they don’t want the third-party accessing the core—that’s a problem.

Then an institution has to figure out how to handle potential security issues that remote deposit capture poses. For example, a fraudster could take a picture of a fake check, or take a picture and deposit a real check remotely, but then immediately try to cash the check at the institution’s branch or at another institution. That’s another challenge. Working with a third-party app provider presents other problems as well. There could be issues importing images, and not getting upgrades delivered. On top of that, an institution has so much already on its plate that it can’t even imagine also handling sales and marketing of these third-party apps.

This example pales in comparison with what a bank or credit union has to do to provide its own solutions to commercial customers. While an institution’s niche may be primarily banking merchants and corporate entities, its focus may be just on commercial lending. However, to increase the stickiness of commercial customers, institutions should strongly consider offering a much fuller array of non-lending products, and those solutions must be cloud-based and easily accessible via mobile.

Therein lies the most daunting challenge of all: Contending with the financial industry’s own version of the Four Horsemen of the Apocalypse— operations, compliance, IT and sales. Banks and credit unions have options how to best overcome these challenges. They could invest in technologies to launch fintech solutions on their own and pay for the required expertise to appropriately manage those Four Horsemen themselves. They could also choose to partner with fintech vendors for each separate solution and try to coordinate management of the various operations, compliance, IT and sales duties that come with each solution. Alternatively, they could work with “concierge” partners that have wider menus of fintech solutions, as well as the expertise to help institutions manage the entire process.

Whichever approach banks and credit unions choose to compete in the new world, one thing is certain: They ignore fintech at their peril, as they risk losing business customers altogether.

For Banks, Maximizing The Small to Medium Business Opportunity Starts With Remote Deposit Capture

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challenge.jpgThe nation’s 27 million small-business owners are busy people, dealing with countless tasks every day to make a go of it. That’s why many consider their trek each business day to the bank to deposit checks and other customer payments to be a hassle. That time adds up. A technology solution, remote deposit capture (RDC), exists that lets businesses transmit checks electronically to the bank for posting and clearing. It saves them time and money.

Here’s the rub: While a majority of banks provide such technology, just 5 percent of small businesses are using it, even though nearly half of them say they would prefer using the remote route (Aite Group report, Nov. 3, 2011).  

This offers large and small financial institutions alike an opportunity. By executing remote-deposit strategies expertly, they can reap some of the estimated $700 million in revenues being lost now because businesses with less than $10 million in annual revenues aren’t employing these services, according to Aite Group

Banks realize they have an opportunity they haven’t tapped. Fifty-one percent of banks surveyed acknowledge they haven’t been effective in educating their business about remote deposit.  Further, one-third of surveyed SMBs say such a service is important/very important to them (Aite Group, August 2011)

What’s sparking the disconnect?  Banks cite:

  • A lack of resources to enroll and support all interested customers, primarily because they’re using manual systems for such enrollment. Banks say it’s expensive to roll out remote deposit for SMBs.
  • Inadequate training resources to educate potential SMB customers about remote deposit as well as training required to educate internal associates allowing them to sell the solution.  According to Aite, nearly three-quarters of all small business either have not heard of RDC or have heard of it, but aren’t familiar with the details.
  • Poor marketing as the technology isn’t often packaged for SMB needs, which means small businesses aren’t even aware of it. Insufficient understanding and evaluation of the risk associated with the SMB market and difficulty managing risk and monitoring an account once an SMB has enrolled.  

One other obstacle exists. Providing technology that allows small businesses to just automate checks only addresses a segment of their needs. They need a turnkey solution that lets them process checks as well as electronic forms of payment, including one-time and recurring ACH, debit and credit transactions.

As for the SMB community, not all of them are prime candidates for remote capture. Five segments, though, comprise half of the SMB deposit opportunity: professional-services firms, construction, property management, medical and education services.  

For banks and SMBs, help has arrived. Recent turnkey solution offerings promise to remedy many of the headaches for banks with remote capture. They include quick, easy online enrollment forms for banks to use that automatically set up new SMB customers. Also, such turnkey solutions are available that provide marketing materials, return-on-investment calculators, automated setup, hands-off training for users, scanner sales, delivery and support.  These systems accept checks and ACH, and the captured payments can be viewed via a single online portal. 

Risk-monitoring capabilities also are available to allow financial institutions to set up queues to manage and monitor deposit behaviors. Automated setup based on underwriting results speeds up the onboarding process.  In addition, systems now can help to handle changes to existing customer profiles, eliminating the need to manually modify a customer and reducing costs. 

Such turnkey solutions will do much to clear up the problems plaguing banks from enlisting customers and small businesses from using remote deposit capture. And just how lucrative could this prove for banks?  One major financial institution is actively pursuing the SMB market.  It figures that its more than 1,000 branches can add thousands of new small-business customers in total each year for the next three years. 

Financial institutions recognize the demand for remote check deposit among small businesses, but limited resources and management tools have kept them at bay.  With the new turn-key solutions available, financial institutions can capitalize on the significant growth opportunities this huge market segment presents.