How FIs can help business customers embrace digital payments

As the needs of your small business customers continue to change, your financial institution needs to adapt your products and processes to best support them. But, how should FIs pave the path to digital payments?

In her session, “How Financial Institutions Can Help Small Businesses Embrace Digital Payments,” at Deluxe Exchange 2022, Aite-Novarica Group’s Head of Banking and Payments Insights and Advisory Christine Barry explores the latest industry research. With a goal to reveal which strategies and products will most effectively improve the relationship between your FI and your small business customers, her research supports which of these strategies you can use as you help guide them toward deeper digital engagement.

Understanding small business banking needs

Approximately 85% of banks believe that greater success with small businesses is critical to the overall success of their institutions. Barry notes that since the beginning of the pandemic, banks have increased their focus on these customers in particular. With more than 35 million small businesses (and growing) in the U.S., winning just a small share of those customers could mean a lot for your FI.

“We’re finding that business customers are much more comfortable, and willing, and even eager to use more digital products offered by their banks,” says Barry. “That is great news for financial institutions because a lot of banks used to hesitate to service these customers because they viewed them as expensive to serve.”

As historically heavy branch users, small businesses are becoming more affordable to support by moving to digital channels. This shift allows banks to have more scalability and a variety of products to meet their customers’ needs.

What does this support look like? “Small businesses may need help with invoicing capabilities, or expense management or adding more sophisticated payments capabilities,” says Barry. “It’s all about creating more opportunities for banks to offer more products to them—as long as they have the right products and services in their portfolio.” 

Current state: Banks fall short of small business needs expectations

According to the research, sixty-six percent of businesses report they are challenged by unintegrated experiences. “A lot of these issues could be improved just within the bank portal,” explains Barry. “Very often banks operate in a very siloed way, and because of that experience that customer face within bank portals also tends to be siloed.” For example, a business may have separate logins for checking their balance, looking at a loan balance, to make a payment on a loan or another portal for mobile remote deposit capture. By moving to an integrated, single-portal experience, banks can offer a positive banking experience over their competitors.

What small business are looking for from their financial institution:

• A single-portal experience where they can go from product to product without having to log in multiple times
• More than three quarters of SMBs look for flexible payment options when selecting a new bank partner
• The ability to offer a variety of electronic payment options (ex: ACH, Zelle, Venmo, eChecks, real-time payments, etc.)

The digital payments revolution means opportunity for financial institutions

According to Barry, if you were to ask a small business why they are shifting to digital, only about 15% would say it’s because of the pandemic, the other 85% would say it’s part of an ongoing trend and something they know they need to do. More small businesses (74%) report they see use cases that are better suited for electronic payments than paper checks.

Repetitive payments like payroll and urgent payments are two great examples where small businesses are seeing the value of digital payments over paper. “Digital payments are a lot more predictable with their timing, and they are faster from a speed standpoint, which comes in handy when a payment needs to be received very quickly,” adds Barry.

Key drivers to digitization:

• 60% of small businesses believe costs associated with paper checks are higher than those for electronic payments
• COVID-19 has accelerated the need to automate payments processes are reduce the amount of paper being processed
• Recipient satisfaction is becoming a more critical drive of improving the disbursement process 

Digital payment solutions are key for your small business customers 

As digital transactions continue to rise, it’s important for your bank to position itself as a facilitator for your small business customers. “As banks look to offer the pathway to digital, they also need to make sure that they are looking for or identifying ways to increase the efficiency of existing processes, i.e. paper check processing replaced with an electronic check,” says Barry.

Electronic checks offer a solution for banks looking to reduce manual processes and increase speed of payment. Along with seamless integration with your business customer’s current AP processes, digital checks offer change with minimal disruption and an improved payment experience.

Here’s how your bank can lay the foundation to digital payments:

• Offer payment flexibility and different payment options
• Focus on education so your customers know what those options are
• Understand your small business customers’ needs
• Align your bank’s messaging with client priorities
• Increase the efficiency of existing payment processes