Starting a Small Business - Banking Must Be Better!
This is Part 2 of the Starting a Small Business blog (if you haven’t yet read part 1, you can do so here):
In Part 1, I shared some of the good and bad experiences in starting Firefly Growth (my third business).
I hope you have gained a few insights into the lengths that business owners go through, and just how different they are from the consumer pains that retail banking leaders have been focused on solving.
Today, many of the banking products offered to both consumers and small businesses are the same.
But tech giants and Software-as-a-Service platforms that small businesses utilize have seen the writing on the wall. They are jumping on the opportunity to add financial services (ex: Shopify with Shopify Capital, Balance and Cards) or find a banking partner for non-banks (ex: Neo Financial partners with Tim Hortons Financial).
The infinite opportunity for Banks and Credit Unions to come to the rescue of Small Business Owners
In Part 1 I shared the Starling Bank Marketplace as an example of where small business banking is heading. At least in other markets…
In Canada, once small business owners have registered their business, launched to market, and made their first sale, they have some fundamental needs that need to be addressed:
SME Owner: “I want to connect my accounting software to my bank account and automatically update transactions from my account to my software.”
A simple need that should have a simple solution. Yet it is legitimately insane how much friction still exists for this need.
To the Banks and Credit Unions: this is table stakes, and Open Banking will make this a requirement.
Get an aggregator to connect your small business customers accounts with accounting software so there is no business disruption for them!
And if you don't, I promise you they will vote with their feet soon enough.
SME Owner: “I have a bank account, a credit card, and use an accounting package. Help me find solutions when the need arises.” For example:
Where can I get business insurance? What do I need? When do I need it?
How do I pay taxes (GST, Payroll, Income)? How do I calculate what I need to pay? Is there something I should do to keep money aside for paying taxes?
I am hiring. What are my options for handling payroll? Where can I find an employment agreement?
Making payments to suppliers is expensive. Are there any other options?
I sometimes have money in my main account. Should I be putting it in a savings account to earn interest?
Should I use another form of credit that is less expensive than a credit card? Working capital loan? Line of credit?
The types of solutions an SME Owner may need will vary depending on:
Type of business
Size
Ownership
Location
And so on. This list of needs is really just scratching the surface.
Digital Banking with Advice
It is inconceivable to think that the average business owner will never need advice from a human. In fact, even the most tech-savvy needs something that isn’t a chatbot or automated voice system to advise them at critical points.
This is a simple fix that Financial Institutions can do today. Turn your branches and client-facing teams into the ‘humans’ that SME Owners need to talk to every once in a while. Arm them with answers to the questions above.
DO NOT make them come to the branch for a signature, or to do something that takes only a few minutes and can be done virtually. Forcing them to burn valuable daylight if they could’ve just handled it online will frustrate and annoy them. They are busy enough.
That being said, they could come to the branch to learn about dividend payments, tax efficiencies, budgeting, or the myriad of other things business owners have to learn how to do. Talking to an expert regarding legitimate needs is a value anyone would happily travel for.
You don’t have to move heaven and earth to make your small business customer happy.
Why is a Marketplace for small businesses so critical?
Because I am willing to bet that every single owner in Canada is using something digital to run their business. And their digital usage is growing with each pain experienced or need uncovered.
Business owners don't want to do anything other than create and sell their products or services, and of course achieve success (and maybe dream of a day where they can transition to retirement).
Ultimately, three-quarters of the things owners have to do is non-strategic to the success of the business.
And the more they’re forced into doing these non-strategic things digitally (invoicing, bookkeeping, making payments, etc), the more convoluted everything becomes.
Multiple paid subscriptions, 20 different passwords to remember, two-factor authentication apps. As it stands, SME owners are expected to become their own de facto tech departments. And this is what I meant by “infinite opportunity”. Because whoever first addresses these needs properly will win by coming to the rescue.
What could a Marketplace that addresses needs look like then?
As an example, I mocked up my own CIBC business bank account to be the place I have my subscriptions managed. In addition to that (maybe they keep my passwords too, and any documents I sign are stored in a vault) some of my apps are integrated into my bank account.
Elsewhere, an example of a Marketplace is like Starling’s where I can find even more apps and options.
P.S. My bank account update from Part 1:
I now finally have a company bank account with CIBC! Here are some of the pains I went through:
Completely giving up on getting a company bank account with RBC
Sending (again, I think for the 4th time) all requested documents about the business, personal income, and my genetic history (okay that one was not required)
Signing documents via DocuSign
Printing the same documents, signing them with an actual signature, scanning and re-sending (because the bank needs your ‘real’ signature”)
Waiting to receive my bank card in the mail
Activating the bank card, but wait…. You can't use it until you make a transaction, which first requires physically going to a branch to get a PIN
Once the card was activated – review 3 months of expenses paid personally and make adjustments in Quickbooks
Update every single service or software used to get the business started, and update with new payment info
Waiting 4 weeks on top of everything else
I will spare you the details about getting a credit card from the same bank. You get the gist.
P.P.S. This could’ve ALL been avoided with a digital SME bank account and made even better with a Marketplace!
Yours truly,
Sue
Chief Change Catalyst | Firefly Growth