Reimagining Small Business Checking

If you could start your own bank and design it from the ground up, what would it look like?

And if you’re a business banker with a focus on small business clients, how would your reimagined bank, and its core product offerings, differ from your current ones?

This is the challenge plaguing banks today. For the most part, business banking products have become a commodity — it’s virtually impossible to differentiate your bank’s offerings from the ones being sold by your competitor down the street. For that matter, it may be hard to draw meaningful differences between your various accounts, such as with your retail and commercial offerings. That’s one reason why 27% of business owners rely solely on a personal account. And it’s also why only 38% of small to medium business owners believe that business banking services offer extra benefits compared to their personal account.

One way for banks to break out of this current dilemma may be to shift their focus. This approach is already working for fintech challengers. Instead of focusing solely on transactional products or in-person services, they worked on understanding customer workflows and solving digital pain points. In the process, they have captured the imagination and the pocketbooks of small business owners.

If your bank has prioritized small business customers, or plans to, the best way to make this shift is by focusing on the business owner. Start with this simple question: What do you need from your bank to make meaningful progress with your business?

Their response likely won’t have anything to do with your existing products or services. Instead, they may share a problem or pain point: I need help tracking which customers have paid me and which have not.

There’s no mention of products or account features like fees, balance requirements and e-statements. A response like this reminds us of the quote popularized by Harvard Business School Professor Theodore Levitt: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.”

In our case, it goes something like this: Business owners don’t want a list of transactional ranges, fees or digital banking tools. They want to know if their bank can help them better track and accept customer payments, so they can maximize their time running their business.

Increasingly, the process of accepting payments is moving from in person to online. But when small business owners turn to their financial institution for assistance, the bank lacks a simple solution to meet this fundamental need.

This leaves the business owner with four options for moving forward — options that require either minimal involvement or no involvement from a bank.

  1. If a small business decides that it’s not worth dealing with cards, they can simplify their receivables by only accepting cash and checks, closing themselves off to customers who prefer to pay in other ways.
  2. If a small business decides to accept credit cards, it can accommodate more paying customers, but must now track payments across bank statements (for checks) and external payment tools (for credit cards).
  3. If a small business relies on external invoicing or accounting tools, it can invoice and accept digital payments, but must now track payments across multiple platforms and reconcile those funds back to its bank account.
  4. If a small business consolidates all of its financial needs with one provider like a fintech challenger, they can resolve the complexity of dealing with multiple tools and/or platforms but lose out on the expertise and high-touch support of a business banker.

The two middle options involve a bank at the outset but can often lead to reduced deposits over the long term. Over time, fintech challengers may disintermediate banks by offering similar, competing products like integrated deposit accounts. The fourth option, born out of frustration, removes the bank entirely from the relationship.

Clearly, no option listed above is ideal. Nevertheless, it is still possible to help the business owner make progress with accepting digital payments. And, even better, there is an emerging  solution for small business owners that may lie with your most straightforward business product: your small business checking account. Watch out for part two to learn more.

How Nonbank Lenders’ Small Business Encroachment Threatens Community Banks

A new trend has emerged as small businesses across the U.S. seek capital to ensure their survival through the Covid-19 pandemic: a significantly more crowded and competitive market for small business lending. 

Community banks are best-equipped to meet the capital needs of small businesses due to existing relationships and the ability to offer lower interest rates. However, many banks lack the ability to deliver that capital efficiently, meaning:

  • Application approval rates are low; 
  • Customer satisfaction suffers;  
  • Both the bank and small business waste time and resources; 
  • Small businesses seek capital elsewhere — often at higher rates. 

When community banks do approve small credit requests, they almost always lose money due to the high cost of underwriting and servicing them. But the real risk to community banks is that large players like Amazon.com and Goldman Sachs Group are threatening to edge them out of the market for small business lending. At stake is nothing less than their entire small business relationships.

Over the past few years, nonbank fintechs have infiltrated both consumer and business banking, bringing convenience and digital delivery to the forefront. Owners of small businesses can easily apply for capital online and manage their finances digitally.

Yet in 2018, only 11% of small banks had a digital origination channel for small business lending. In an age of smartphones, community banks still heavily rely on manual, paper-based processes for originating, underwriting and servicing small business loans. 

It was no surprise, then, when Amazon and Goldman Sachs announced a lending partnership geared toward third-party merchants using the retail giant’s platform. Soon, invited businesses can apply for a revolving line of credit with a fixed APR. Other major companies like Apple and Alphabet’s Google have also debuted innovative fintech products for consumers —it’s only a matter of time before they make headway into the small business space.

A 2016 Well Fargo survey found that small business owners are willing to pay more for products and services that make their lives easier. It makes sense that an independent retailer that already sells on Amazon would be more inclined to work with a lender that integrates directly into the platform. If your small business lending program isn’t fully online, customers will take the path of least resistance and work with institutions that make the process easier and more seamless.

Serving small business borrowers better
The issue isn’t that small businesses lack creditworthiness as prospective customers. Rather, it’s that the process is stacked against them. Small businesses aren’t large corporations, but many banks apply the same process and requirements for small credit requests as they do for commercial loans, including collecting and reviewing sophisticated financials. This eliminates any chance of profit on small credit requests. The problem is with the bank’s process — not its borrowers.

The solution is clear cut:

  • Digitize the lending process so customers don’t have to take time out of their busy day to visit a branch or speak with a loan officer. Note that this includes more than just an online application. The ability to collect/manage documents, present loans offers, provide e-contracts and manage payments are all part of a digitally-enabled lending process.
  • Incorporate SMB-specific credit criteria that accurately assess creditworthiness more effectively, like real-time cash flow and consumer sentiment.
  • Take advantage of automation without giving up control or increasing risk. For example, client notifications, scoring and application workflow management are all easy ways to save time and cut costs.
  • Free up lending officers to spend more time with your most-profitable commercial customers.

These changes can help turn small business customers into an important, profitable part of your bank. After all, 99% of all U.S. businesses are considered “small” — so the ability to turn a profit on small business lending represents significant upside for your bank. 

With better technology and data, along with a more flexible process, community banks can sufficiently reduce the cost of extending capital to small businesses and turn a profit on every loan funded. Next, banks can market their small business loan products to existing business customers in the form of pre-approved loan offers, and even gain new business customers from competitors that push small business borrowers away. 

Think about it: small business customers already have a deposit relationship at your bank. Community banks have this advantage over the likes of Amazon, Goldman Sachs, Apple and others. But when time is limited, small businesses won’t see it that way. By rethinking your small business lending process, it’s a win for your bank’s bottom line as well as a win in customer loyalty.

Texas Strong: Banks Contend With Dual Threats

“Texas has four seasons: drought, flood, blizzard and twister.” – Anonymous

To that list of afflictions you can add two more — the Covid-19 pandemic and a catastrophic collapse in global oil prices, creating double trouble for the Lone Star State.

There were over 50,500 coronavirus cases in Texas through May 20, an average of 174 per 100,000 people, according to the Center for Systems Science and Engineering at Johns Hopkins University. There were nearly 1,400 coronavirus-related deaths in the state.

In mid-March, Texas Gov. Greg Abbott imposed restrictions that limited social gatherings to 10 people or less, and effectively closed close-proximity businesses like restaurants and bars, health clubs and tattoo parlors. Even as Abbott reopens the state’s economy, many of its small businesses have already been hurt, along with many lodging and entertainment concerns.

Shutting down the economy was probably a good health decision,” says F. Scott Dueser, chairman and CEO at $9.7 billion First Financial Bankshares in Abilene, Texas. “It wasn’t a good economic decision.”

And then there’s oil situation. An oil price war between two major producers — Russia and Saudi Arabia — helped drive down the price of West Texas Intermediate crude from over $60 per barrel in January to less than $12 in late April, before rebounding to approximately $32 currently.

Texas still runs on oil; while it is less dependent on the energy sector than in past cycles, its importance “permeates” the state’s economy, according to Dueser. “It is a major industry and is of great concern for all of us,” he says.

The 65-year-old Dueser has been First Financial’s CEO since 2008, and guided the bank successfully through the Great Recession. “I thought I’d be retired by the next recession but unfortunately, we weren’t planning on a pandemic and it has come faster than I thought,” Dueser says.

This downturn could be as bad or worse as the last one. But so far, damage to First Financial’s profitability from the combined effects of the pandemic and cheap oil has been minor. The bank’s first quarter earnings were off just 2.6% year over year, to $37 million. Like most banks, First Financial has negotiated loan modifications with many of its commercial borrowers that defer repayment of principal and/or interest for 90 days.

Dueser won’t know until the expiration of those agreements how many borrowers can begin making payments, and for how much — clouding the bank’s risk exposure for now. But with a Tier 1 capital ratio over 19%, Dueser has the comfort of a fortress balance sheet.

“We unfortunately have been down this road before … and capital is king because it’s what gets you through these times,” he says.

Dueser made a decision early in the pandemic that as much as possible, the bank would remain open for business. It encouraged customers to use branch drive-thru lanes, but lobbies have remained open as well.

“So far we have been very successful here at the bank in staying open, not locking our doors, not limiting hours, keeping our people safe and at the same time serving more customers than we ever have in the history of the bank,” Dueser says.     

The bank has followed Covid-19 safety requirements from the Center for Disease Control. “The most important things are don’t let your people come to work sick and social distancing,” Dueser says. “We split every department, such as technology, phone center, treasury management and so on with having half the department work from home or from another one of our locations. That way we had only half the people here, which allowed us to put people in every other desk or cubicle.”

To date, the bank has had only four Covid-19 cases among its employees. “Thankfully, all four of those individuals are healthy and back at work,” Dueser says. “With each situation we learn more on how to protect our employees and customers.”

Dueser is one of 39 people on a task force appointed by Abbott to advise him on reopening the state’s economy. “I am very supportive of what he is doing, in the fact that we are getting the state back open,” he says. “The virus is not winning the war, which is good. We have a lot to learn so that we can live with the virus without having to go home and hide in a closet.”

One of Dueser’s biggest priorities through the economic hardship was to make sure retail and commercial customers knew that it would stand by them, come what may. That led to a recent marketing campaign designed around the phrase “Texas Strong,” a slogan used throughout the state that traces back to Hurricane Harvey, which devastated Houston in 2017.

“We want our customers to know that we’re safe, sound and strong,” says Will Christoferson, the bank’s senior vice president for advertising and marketing. “What’s stronger than Texas? We couldn’t think of anything.”

Beyond PPP: Supporting Small Business Through the Covid Crisis

In the first wave of the Small Business Administration’s Paycheck Protection Program, West Des Moines, Iowa-based Bank Iowa Corp. closed around 400 loans totaling $72 million, according to CEO Jim Plagge. When we spoke — just a few days before the SBA re-opened the portal for another $320 billion of PPP loans — the $1.4 billion bank was prepared to submit another 75 or so applications.

The bank’s branch teams — which are split to encourage social distancing and minimize the impact if someone were to get sick — have also taken to ordering takeout every day to support local restaurants that have been particularly hard hit. “[We’re] just trying to support them,” he says.

This desire to support the 23 communities it serves inspired Bank Iowa’s “Helping Hand” program, which is accepting nominations to assist local organizations, small businesses and nonprofits. The bank’s goal is to serve at least one need in each of its seven regions. “We’re only as strong as the communities we serve,” says Plagge. “So, we’re just trying to help where we possibly can.”

Banks play a vital role in supporting their communities, one we’re seeing played out across the country as bankers put in extra hours to help customers, especially small businesses that keep towns alive. Bank Iowa, like many financial institutions, recognizes that supporting small businesses can’t be limited to the SBA program — PPP loans have proved difficult to obtain, and they don’t make sense for some companies that still need help.

Bank Iowa reached out immediately to borrowers to understand the impact of the coronavirus crisis for each one, says Plagge. The bank has deferred loan payments, restructured debt and set up working capital lines. Bankers have also been a shoulder to cry on.

“[We’re] trying to be there to help our clients talk through the difficulties they’re facing,” says Plagge. “Hopefully we can offer some advice and encourage them along the way.”

Relationships matter. “We typically see that business banking account managers get good scores for being courteous, knowledgeable and responsive,” says Paul McAdam, a senior director, regional banking in the financial services practice at J.D. Power. Small business owners will be even more sensitive to their banker’s response in today’s desperate environment, asking: “‘Do I feel like I’m connecting with them? Do they understand my needs and what I’m going through right now?’”

In addition to building long-term relationships, supporting small businesses now could help banks reduce later damage to their loan portfolios. But unfortunately, tough decisions will be required in the coming months. Plagge says Bank Iowa has started stress testing various sectors. With agriculture comprising a significant portion of the loan portfolio, they’re examining the impact of a reduction in revenue for ag producers.

“Our goal will be to try to work with every borrower and see them through this,” Plagge says. “But we also know that may not be possible in every case.”

David K. Smith, a senior originations consultant at FICO, advises banks to segment their portfolio, so lenders understand which businesses they can help, and which pose too great a risk. Does the business have a future in a post-Covid economy? “You can only help so many without sinking your portfolio,” he says.

But banks should also look for ways to keep relationships alive. “As small businesses go out of business, there’s an entrepreneur there … that person who lost this company is going to be on the market creating another company soon,” says Smith.

After the crisis, this could lead to a wave of start-up businesses — which banks have typically hesitated to support. “They’re going to have to rethink policy, because [of] the sheer number of these that are going to pop up,” says Smith. Some businesses won’t fail due to poor leadership; they simply couldn’t do business in an abnormal environment, given shelter-in-place and similar orders issued by local governments. “Bankers will have to appreciate that to a certain degree and figure out a solution, because it will help bring the economy back faster,” he says.

Data In The Best, And Worst, Of Times

Helping their community and delivering personalized service is the foundational differentiation of every community bank. Now more than ever, customers expect that their community bank understands them and is looking out for their best interests.

Customers are communicating with their banks every day through their transactions — regardless if they are mobile, in person or online, each interaction tells a story. Are you listening to what they’re telling you? Whether your bank is navigating through today’s COVID-19 crisis or operating in the best of times, data will be key to success today and in the future.

Business intelligence to navigate daily operations is hard to come by on a good day, much less when things are in a pandemic disarray. Many bankers are working remotely for the first time and find themselves crippled by the lack of access to actionable data. A robust data analytics tool enables employees at all levels to efficiently access the massive amounts of customer, market, product, trend and service data that resides in your core and ancillary systems. Actionable data analytics can empower front-line bankers and risk managers to make data-driven decisions by improving and leveraging insight into the components that affect loan, deposit and revenue growth. Additionally, these tools often do the heavy lifting, resulting in organizational efficiencies that allow your bankers and executives to focus on strategic decision-making — not managing cumbersome data and reporting processes.

A tool that aggregates transformative data points from various siloed systems and makes them readily available and easy to interpret allows your management team to be better prepared to proactively manage and anticipate the potential impact of a crisis. This positions your bank to offer products and services that your customers need, when they need them.

But most community banks have not implemented a data analytics solution and as such, they  must consider how to manually generate the information needed to monitor and track customer behaviors to assist them in navigating this crisis. Below are a few potential early warning indicators to monitor and track as your bank navigates the current coronavirus crisis so you can proactively reach out to customers:

  • Overdrafts, particularly for customers who have never overdrawn.
  • Missing regular ACH deposits.
  • Past due loans, particularly customers who are past due for the first time.
  • Line of credit advances maxing out.
  • Lines of credit that cannot meet the 30-day pay-down requirement.
  • Declining deposit balances.
  • Large deposit withdrawals.
  • Businesses in industries that are suffering the most.

If your community bank is one of the many that are proactively assisting customers during this pandemic, make sure you are tracking data in a manner that allows you to clearly understand the impact this crisis is having on your bank and share with your community how you were able to help your customers during this critical time. Some examples include:

  • Paycheck Protection Loan Program details: number of applications received, processed and funded; amount forgiven; cost of participating for the bank; customer versus non-customer participation, impact on lending team, performance.
  • Customer assistance with online banking: How did you help those who are unfamiliar with online banking services? How many did you assist?
  • Loan modifications, including extensions, deferments, payment relief, interest-only payments and payment deferrals.
  • Waived fees and late charges.
  • Emergency line of credits for small business customers.

Having easy access to critical customer information and insights has never been more important than it is today, with the move to remote work for many bankers and rapidly changing customer behaviors due to the economic shutdown. Customers are making tough choices; with the right data in your bankers’ hands, you will have the ability to step up and serve them in ways that may just make them customers for life.

Seven Small Business Lending Trends In 2020

There are roughly 5.1 million companies that comprise the small to medium-sized business (SMB) category in the U.S. today — and that segment is growing at 4% annually. Many of these businesses, defined as having less than 1,000 employees, may need to seek external funding in the course of their operations. This carves out a lucrative opportunity for community and regional banks.

To uncover leading trends and statistics, the Federal Reserve’s 2019 Small Business Credit Survey gathered more than 6,600 responses from small and medium U.S.-based businesses with between 1 and 499 employees. These are the top seven small business lending statistics of 2019 — along with some key insights to inform your bank’s small business lending decisions in 2020.

1. Revenue, employee growth in 2018
The U.S. small business landscape remains strong: 57% of small businesses reported topline growth and more than a third added employees to their payrolls. Lending to these companies isn’t nearly as risky as it once was, and the right borrowers can offer an attractive opportunity to diversify your bank’s overall lending portfolio.

2. Steady rise in capital demand
Small businesses’ demand for capital has steadily risen: in 2017, 40% of surveyed businesses applied for some form of capital. In 2018, the number grew to 43%, with no drop-off in sight. Banks should not wait to tap into this lucrative trend.

3. Capital need
With limited and/or inconsistent cash flow, small businesses are almost bound to face financial hurdles. Indeed, 64% of small businesses said they needed capital in the last year. But when seeking capital, they typically find many banks turning their backs for reasons related less to credit-worthiness, and more to slimmer bank margins due to time-consuming due diligence.

As a result, over two-thirds of SMBs reported using personal funds — an outcome common to many small businesses owners. This is a systemic challenge, with a finding that points to an appealing “white space” opportunity for banks.

4. Capital received
Too many small businesses are settling for smaller loans: 53% of small businesses that sought capital received less funding than they wanted. Banks can close this funding gap for credit-worthy small businesses and consistently fill funding requests by decreasing the cost of small business lending.

5. Funding shortfalls
Funding shortfalls were particularly pronounced among specific small businesses, with particular credit needs. Businesses that reported financing shortfalls typically fell into the following categories:

• Were unprofitable
• Were newer
• Were located in urban areas
• Sought $100,000 to $250,000 in funding

Of course, not all small businesses deserve capital. But some shortfall trends — like newer businesses or those in urban areas — may suggest less of a qualification issue and more to systemic barriers.

6. Unmet needs
Optimistic revenue growth paired with a lack of adequate funding puts many viable small businesses at unnecessary risk. The survey found that 23% of businesses experienced funding shortfalls and another 29% are likely to have unmet funding needs. Capitalizing on these funding trends and increasing small business sustainability may well benefit both banks, businesses and communities in the long run.

7. Online lenders
Online lending activity is on the rise: 32% of applicants turned to online lenders in 2018, up from 24% in 2017 and 19% in 2016. The digital era has made convenience king — something especially true for small business owners who wear multiple hats and are naturally short on time. Online lending options can offer small business owners greater accessibility, efficiency and savings throughout the lending process, especially as digital lending solutions become increasingly sophisticated.

A Long-Term Approach to Credit Decisioning

Alternative data doesn’t just benefit banks by enhancing credit decisions; it can help expand access to capital for consumers and small businesses. But effectively leveraging new data sources can challenge traditional banks. Scott Spencer of Equifax explains these challenges — and how to overcome them — in this short video. 

  • The Potential for Alternative Data
  • Identifying & Overcoming Challenges
  • Considerations for Leadership Teams

 

The Big Future of Small Business Banking


fintech-8-28-18.pngAccording to the U.S. Small Business Administration Office of Advocacy, there are currently 29.6 million micro and small businesses in the United States. Of those, 80 percent are one-person businesses, and 22 percent are made up of 10 employees or fewer. Businesses that fall within these parameters span every industry from freelancers and bloggers, to designers, developers, and start-up entrepreneurs. All are seeing a boom in sales and dependency from consumers due to the so-called “gig economy.”

A lot has been done by banks and alternative lenders when it comes to providing financing for these micro and small businesses, but given this data, it begs the question: how do they all bank?
Traditionally, banking for micro and small businesses has been limited at best and inadequate at worst. In most cases, small business owners have had no other option but to visit a physical bank branch, fill out endless paperwork, provide documentation, and then transfer items back and forth to the bank through the mail or by email. The technology is typically clunky, out of date, and inconvenient – all adjectives a far cry from how these businesses would describe themselves, and how they need to operate. In addition, these owners are, at their core, consumers. They experience cutting-edge products and technology with their own personal banking accounts, but that same innovation is not replicated on the business side.

To alleviate this burden, the banking industry has a lot of soul searching to do. Some banks have spent a lot of time and energy discussing digital banking disruption in the consumer world. The time has come for the next frontier in the small business market, which has inspired and driven forward-thinking banks to develop customized solutions for small business customers.

For banks considering entering—or reimagining their approach to—the small business segment, it begins with a solid strategic plan. Understanding the demographics and banking needs of your target market will help guide the product development and customer experience process. This covers everything from developing a product suite that will be appealing to both the market and your bottom line, to thinking through the journey as a business going from being a prospect to a customer.

At Radius, we took some learnings from our experience in the digital consumer banking space and used it to build the framework for our small business offering. While small business owners may need a little more complexity with their money management tools than consumers, designing something that was simple and straightforward was the key. The result for us was the Tailored Checking Account, which any small business can now apply for online and get opened in minutes thanks to a partnership we established with Treasury Prime, a San Francisco-based fintech.

Radius isn’t alone in its quest to help business owners better manage their finances. In addition to our offering, we’ve noticed several other fintechs focused and working to fill the void that many small business owners are experiencing. For example, Autobooks helps small businesses manage their receivables, payables, payments and accounting entirely online. Brex creates business debit cards that operate like credit cards without the need for a personal guaranty. And Rocket Dollar helps individuals unlock their retirement savings for things like funding a startup or making a small business loan.

Overall, the sheer amount of micro and small businesses requires the banking industry’s attention. Consumers are increasingly turning to shopping local and supporting small businesses, only hastening the need for small business owners to manage their money on their terms—a trend that won’t decline anytime soon. This is a market that all banking professionals should be paying attention to, as the market only continues to grow. I look forward to seeing the outcome over the next year and am eager to see what the future holds for us and the rest of the small business banking industry.

SizeUp: Friend or Foe


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Making smart decisions at every stage of growth is a critical—and often difficult—process for many small businesses. While larger companies have the money and resources to utilize big data and analytics tools to gain insight into their performance, customers and competition, small businesses are often left guessing and must rely on incomplete information (or gut instinct) to make key decisions like whether to expand into a new location or introduce new products.

That’s where fintech business intelligence startup SizeUp is stepping in. SizeUp partners with traditional banks to offer big data and business intelligence tools to small business customers to engage (and retain) them over the long run. Business owners who want to know such things as the most under-served areas of their markets when they are considering where to expand can use SizeUp to make the best possible decisions.

SizeUp already partners with big banks like Wells Fargo & Co., but long term will it be a friend or foe to legacy institutions? Let’s dive in and find out.

THE GOOD
SizeUp was initially chosen as one of 30 finalists in the TechCrunch Disrupt startup pitch competition in 2016, out of more than 12,000 applicants. TechCrunch Disrupt is Silicon Valley’s leading startup and technology conference, and the Disrupt startup pitch contest is widely considered to be the most competitive in the tech world. One of the important benefits that banks derive from working with SizeUp is that it increases the breadth of services they can offer their small business clients. Wells Fargo’s Competitive Intelligence Tool (powered by SizeUp), for example, helps businesses manage and grow their companies by analyzing performance against competitors, mapping out customer opportunities and finding the best places to advertise in the future. Providing this level of intelligence about local markets, along with a competitive scorecard analysis, can also be used to decide the best areas for potential expansion.

And as successful small businesses scale, SizeUp’s platform is designed to enable banks to anticipate which financial products their clients are likely to need in the next stage of growth.

“SizeUp enables banks to introduce their products and services at each key decision making moment in a business’ life,” says SizeUp CEO Anatalio Ubalde. “So for example, a small business loan during launch, and a line of credit as they grow.”

Big banks quickly realized the value that SizeUp’s platform brings to the table, with institutions like Deutsche Bank and Credit Suisse investing early on in SizeUp’s development through programs like the Plug and Play Fintech Accelerator. Headquartered in France, Plug and Play is a large international fintech venture capital firm and accelerator, and a partner with BNP Paribas, France’s second largest bank. SizeUp has even partnered with the U.S. Small Business Administration to help entrepreneurs and business owners assess how they stack up with the competition and map out potential vendors and suppliers.

THE BAD
It’s hard to find a whole lot of negatives with SizeUp’s platform and partnership model. If there’s one drawback, it’s the sheer volume of data points and information that is available on the platform. SizeUp draws from hundreds of public and private data sources, so the platform might be slightly overwhelming for small business owners who are not particularly tech savvy. That being said, banks are in a good position to aid their small business clients onboard to the platform and accelerate the learning curve.

OUR VERDICT: FRIEND
At the end of the day, SizeUp is a friend to banks and legacy financial institutions of all sizes. Bringing this level of sophisticated big data and business intelligence to their small business clients is only serving to help them grow and succeed, which should ultimately result in increased small business account retention. And as these companies grow, banks can be ready to upsell and cross-sell additional products and services that focus on specific stages of development along the way. SizeUp also provides an engaging product and interface that business owners can use for a variety of purposes, from plotting out an advertising campaign to gaining an in-depth understanding of how they stack up against the competition at any given time.

Big data and sophisticated business intelligence is something that most small business thought was only for companies with large technology budgets, but SizeUp is in the process of changing all that. And in addition to helping small businesses make better decisions during each phase of their growth, the firm is helping banks engage (and retain) those customers over the long haul.

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?