April, 2008
Cash
Management Services for Small Business
Payment
products, especially for small businesses, are one of the most
significant opportunities for financial institution revenue growth.
Recent
BAI research indicates that the most attractive small business
segments are very aware of new payment products and innovations. Up to
80% of businesses less than $10 million in revenue expressed a strong
interest in technology based payment solutions. More importantly, a
majority of small businesses would be willing to change banks to acquire
these services – most likely because a similar percentage do not believe
their bank has a strong suite of payment products to meet their needs.
We’ve worked with several banks to help improve Cash Management products and services. One of the key goals for our clients was encouraging greater usage of electronic services: pay bills electronically, receive statements and perform account reconciliation on-line, etc. These services are designed to make it easier for business customers. It’s simpler, faster, more accurate, less labor intensive. And there are other benefits too – customer relationships are deeper, leading to lower attrition and higher profitability.
All of this got us to thinking – how many banks take their own advice and use electronic services to pay their own vendors?
We looked back at our records. Virtually all of our clients are financial institutions. We’ve had projects that were short (one invoice) and long (multi-year). We’ve worked for small banks and some of the largest. But only one – National City – ever paid by ACH. We’d invoice them electronically, they’d respond with a confirming email when funds were transmitted to our bank account. Everyone else had the same process (probably the same one most of you use): “Mail me an invoice, I’ll initial it and forward to Accounts Payable, and they’ll mail you a check.”
Why do we encourage consumers and businesses to convert to electronic delivery while we still do it the old fashioned way? Change is hard. It’s hard for the bookkeeper at a small business, who still wants to get cancelled checks returned with the monthly statement, staple them to the paid vendor invoice and file them. In the same way, it’s hard for a bank’s account payables department to alter their own long standing procedures.
We believe there are implications for product development and sales process in order to break down barriers to adoption:
Improved simplicity of set-up and use
Better customization of products to market segments and company size
Improved training – both for bank sales staff and customers
Payment products offer a tremendous opportunity. Check volume continues to decline while electronic transactions are growing at a torrid rate. Yet, despite a high level of interest from customers, most banks have not adapted their products to the unique needs of owner-managed small businesses. Financial institutions that take these actions now will be in the best position to capitalize on these rapidly emerging revenue opportunities.
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(c) Peak Performance Consulting Group, 2008