Have a look at your bank's local website in respect to business internet banking and you'll see lots of demos, and promotion of basic features like "instant balances," "convenient transactions" and "anytime access." In 2001 that might have been world-class features, but today that's tired, boring and hardly a differentiator. So why haven't we seen much improvement in business banking since 2001? Basically because most banks are out of touch with the day-to-day banking needs of their corporate customers.
The Three worlds of Business Internet Banking
There are effectively three worlds in Business Internet banking, there is the sole trader, the Small-to-Medium-size Operator (SME) and the Large Corporate. In respect to platform, the challenges of the sole trader and SME are somewhat similar operationally. However, for a sole trader, they tend to run their bank account more like a personal facility, but with business transactions coming in and going out. They usually have a very small staff footprint, if any, but their primary banking activities are paying for goods and services and chasing payments from customers/clients.
The SME has, by definition, fewer than 100 employees. They have the same concerns as a small trader, but incorporated in operational concerns are payroll and Human Resources functions, and the job of managing cash flow -- increasingly tough in a challenging economy. The Large Corporate has a much more complex environment from a payments and banking perspective. Managing complex suppliers and procurement relationships, group life, health and pension concerns, along with credit facilities, receivables management, etc. So what role can Business Internet Banking (BIB) 2.0 play in the corporate landscape today?
The Sole Trader
Collecting money is one of the biggest challenges for a small trader, as cash flow needs are often acute. Especially in the early phase of the business, a sole trader will often be operating hand-to-mouth, month-to-month. So the ability to collect payments is critical. However, as dealing with checks and cash becomes increasingly erroneous, many sole traders turn to merchant services either through POS capability or e-commerce integration to solve the payments dilemma. But if you are a sole trader, good luck on getting a merchant account.
Many banks require a minimum of $100,000 a year in transaction throughput before you "qualify" for a merchant account. Then the onboarding process for a merchant account is extremely complex. You need to sign contracts with the bank, with each of the card issuers (Mastercard, Visa, Diners, American Express, Union Pay, etc.), and you typically need to set up a completely new "merchant" account. This process is not simple, and in many cases small businesses just don't qualify. Additionally, ask a sole trader when they were ever proactively offered a merchant account...
This is one of the reasons we see a host of workarounds for accepting bank payments today. Jack Dorsey, one of the founders of Twitter, has started up Square, a cheap and fast alternative to traditional merchant onboarding. Square has had some recent competition in Europe (the UK and Germany to start with) from iCharge. There are also a bunch of online virtual merchant and e-commerce payment options from the likes of Shopify, Yahoo! Merchant Solutions, Amazon, Google Checkout and many, many more.
However, the future looks bright for sole traders. With Visa announcing trials of NFC mobile payments this year, with Orange and Barclaycard doing the same in the UK, and Apple hiring some big names in NFC for their next iPhone -- we'll all soon have the ability to accept contactless payments with ease as our phones become POS terminals of a sort.
With payments sorted, the remaining issue is cash flow and financial management. As I already posted back in June, there are huge possibilities in the area of accounting, cash-flow modeling and credit services in the cloud. But don't think cloud as in outsourced from a banking perspective, think that the bank is the "cloud" and the Business Internet Banking platform is the services layer that provides the key functionality to customers. Already the sole trader today probably has most of his transactions going through one account -- so his bank statement is effectively his general ledger. Be smart banks... formalize this. Recognize that the sole trader's internet banking system is also his day-to-day accounting function. Enable that, and you have something really helpful for the small-business owner.
Small-to-medium-sized businesses face their biggest challenges oddly enough when they are dealing with rapid growth. Small businesses don't have a huge pool of resources to draw upon, so when business steps up a notch, the hiring lag can often be a problem, as can be hiring ahead of the receivables. Take a medium-sized company of 20-30 employees and throw a $3-4 million contract at a company of that size -- life changing, yeah? Maybe, but if your total revenue last year was $4 million and you are going to double that, you need to hire another 15-20 staffers today. Problem is, the cash isn't going to come in until the end of Q1 next year? So how can you afford to ramp up? This is the type of scenario where banks are supposed to help, but are too risk adverse these days to assist.
By getting closer to SMEs and understanding their business better, there are real opportunities here. But don't stress about the investment in direct banking resources, just offer SMEs a platform where they can upload their accounting data and get free cash-flow analysis, along with suggestions about how to deal with cash issues. The system then can act to provide better triggers for SME relationship managers to talk to their clients. Right now banks do a lot of waiting for clients to come to them, and the first thing we ask is to provide the last three years of accounts. I'm proposing a reversal of that. Get the accounts by allowing SMEs to upload them to their Internet Banking platform, offer free financial analysis, and on the basis of smart analysis, provide the services customers need as they need them, not only when they ask for them.
Business Internet Banking can become the platform for so much more leverage with business clients, but today it is a very basic transactional platform for the bulk of customers. We need to shift it to become the PFM of business banking -- a toolset that enables the bank to help your business when you need the help, not only when you ask for it.
I'll discuss Business Internet Banking for the large corporate on my next blog.