Christine Barry

Small businesses represent untapped revenue potential for banks. They are showing a greater willingness to pay for financial products and tools that save them time and increase convenience, yet most banks are not reaping the benefits. Instead, many businesses are going outside of their banks to financial technology providers that are demonstrating high levels of innovation and offering capabilities that address specific customer pain points. 

Because of the potential benefits financial technology firms can offer, bank offerings must keep better pace with small-business needs.  

Aite Group conducted research to describe one key way in which banks must evolve their small-business strategies and product offerings to grow their share of the small-business wallet. Greater success with these customers today and in the future requires change. For most banks, that change must include partnerships with fintech providers. 

To analyze this change, Aite Group conducted a survey between June to July of 2017 of 1,000 U.S.-based businesses generating between $100,000 and $20 million in annual revenue, the segment referred to as “small businesses.”  

Aite Group saw an uptick in the expectations of technological sophistication needed for small business in the U.S. New expectations around agility, user experience and capabilities beyond traditional banking products and services are driving many banks to look for new technology partners. A growing number of banks have internal groups focused on monitoring the fintech space in search of new potential partners and investments. 

Because of this technological upheaval, the consumer banking platforms historically leveraged to serve these customers are no longer effective; business-specific capabilities are needed. Emerging fintech companies have been focusing on the small-business segment the last few years and have quickly developed products and services that fill many bank gaps. A repeated implication of these market trends is that bank/fintech partnerships are a win-win for both organizations and especially the customer. 

Fintech Firms Become Essential to Online Banking Future 

Fintech firms were once viewed as competitors but are now seen as necessary partners to achieve bank goals. According to Aite Group’s research, businesses are looking to link up with fintech firms more frequently. 

It is not surprising that 40 percent of small businesses surveyed would like to see their banks partner with more fintech providers, the Aite Group survey found. Among millennial-run small businesses, that percentage jumps to 53 percent, signaling that such partnerships will be even more important to bank success in the future.  

Aite Group recommends that bank strategies need to stay one step ahead as small businesses evolve.  Millennials promise even greater expectations around bank product offerings and capabilities going forward. Technology will play a critical role in enabling banks to meet expectations, but for most, moving forward alone won’t enable them to do it as quickly and effectively as they need to.  

Those banks willing to make the necessary investment, form the right partnerships and make adjustments to their product offerings and selling strategies will reap the benefits and leave those continuing to maintain the status quo in the dust.  

Christine Barry is research director for Aite Group’s wholesale banking practice, focusing on the strategies and technology implementations of global banks of all sizes. To learn more about Aite Group’s research coverage of wholesale banking and global banks, please contact Aite Group at info@aitegroup.com.