Digital UX Key for Banks to Win Back Small Businesses from Fintechs

Offering mobile or online banking services isn't enough to be competitive. Small businesses increasingly expect a user experience with great functionality and innovative features. Banks and credit unions should place themselves at the center of an ecosystem, enabling companies to manage financial accounts in one place.

For banks and credit unions looking to grow their small business clientele, creating the right digital experience should be priority number one.

Small businesses — often owned and operated by younger adults — look at technology offerings and digital experience as a major factor in whom they choose to bank with. It’s a major reason why so many small businesses are choosing to bank with fintechs.

“The perception of technology capabilities and digital experience is very important,” says Marcus Rothaar, Manager of Data Analytics Development and Delivery for Raddon, in an interview with The Financial Brand. “This goes beyond just mobile or online banking,” he says. “Small business owners want tools that make their banking life easier, faster and more efficient.”

Targeted Innovation:

As in the consumer space, fintechs saw pain points in small business finance and came up with a better way, combining mobile features with ease of use.

Raddon, a part of Fiserv, conducted a survey of 1,200 small business owners or decision makers and found that the driving force in who small business owners choose to bank with is technology capability.

Three quarters of respondents said they are customers of a major bank, largely because of their tech. In addition, 39% of small business customers using a major bank self-identify as early tech adopters, compared to only 10% of the customers of “nonmajor” banks.

But beyond that disparity, banks and credit unions of all sizes would be wise to examine how they can improve their digital experience in order to avoid losing small business customers to fintechs and neobanks. This is especially true with small business lending, where fintechs have made big inroads, Rothaar points out.

While traditional financial institutions still hold an advantage when it comes to small business loan origination, fintechs are quickly closing the gap, given a boost by the Paycheck Protection Program, as Barron’s notes. And beyond just lending, small businesses are increasingly turning to fintechs for other needs, such as invoice management and supply chain finance.

Read More: How Square is Building a Small Business Banking Powerhouse

UX Starts with What Customers Need

When it comes to what type of digital experiences banks and credit unions need to offer to attract more small business clients, there is “no magic bullet” says Rothaar, but the general area of focus should be around usability.

“The functionality and user experience should be presented in a way that is very intuitive and user-friendly, and not clunky,” he states. “As a small business owner using a mobile banking app, am I able to easily navigate to get to what I want to do?”

Banks and credit unions also should put the small business customer at the center and figure out what digital tools and services they need, rather than try and shoehorn them into existing products and services, says Olivia Lui, a director at research and analyst firm Curinos.

Key Point:

Rather than force-fit customer needs to existing products, banks should determine the type of customer they want and then fit the product to the needs of that segment.

Like Rothaar, Lui says there is not one way to create a digital experience for small business customers.

“For the bank to figure out what to prioritize from a digital experience and UX perspective, they first need to determine what type of client they want to grow with and then figure out what are the right digital features to fit the needs for that particular segment,” Lui states.

For example, many small business owners still have a desire to talk to a banker in person, but don’t necessarily want to go to a branch. This could suggest investing in video-enabled interactions with bank personnel, Lui states. Since small business owners often work long hours, 24/7 digital access to help and advice could be an appealing service, she adds.

Curinos research supports this idea. While 35% of small business owners surveyed in 2018 said having a branch or ATM close by was important in choosing who to bank with, by 2021 that number dropped to 25%. At the same time, 50% of small business owners said in 2021 that strong digital services were important.

Read More: Fintechs Threaten to Disrupt the Small Business Banking Market

Why Features (Like BNPL) Matter As Part of UX

To remain competitive, financial institutions need to meet the future digital needs of small businesses as well as their present needs.

For small businesses, two major digital trends stand out, according to Raddon: the ability to offer their customers buy now, pay later services and being able to pay and receive in cryptocurrency.

14% of small businesses polled in Raddon’s survey say they currently accept cryptocurrency, but an additional 33% say they are either extremely or very likely to accept cryptocurrency in the near future. The capabilities of the business’ merchant payment processor will factor into this future adoption of cryptocurrency, so financial institutions should consider their role in offering merchant card services to their small business clients, Raddon advises.

Crypto Craze:

Small businesses that say they either currently accept cryptocurrency payments or are very likely to:

Buy now, pay later is also piquing the interest of small businesses: While only 12% polled are currently offering some sort of BNPL option to customers, another 35% say they are extremely or very interested in offering this option in the future, Raddon found.

Banks don’t necessarily have to be able to offer crypto and BNPL services to their small business customers right now, says Rothaar, however, they have to “at least be conversant in these areas, because these are things more small businesses are asking for.”

Ecosystems: The Future of Business Banking

Ultimately, the best digital experience that will win small business customers in the future will involve financial institutions becoming “ecosystem facilitators,” Curinos’ Lui maintains.

Explaining, she says that small businesses often have many different accounts and applications from different financial institutions and other providers, ranging from payroll accounts, operating accounts to invoices. In addition, they typically use various productivity apps, she says.

Read More: Bad Habits That Stifle UX Innovation at Banks & Credit Unions

An ecosystem facilitator can plug all these accounts and applications into one utility, allowing the small business owner to manage them all from one place, Lui states. “And then you can provide proactive insights and personalized product recommendations. This is where the world is heading.”

While most banks are not currently playing this role of ecosystem facilitator for small businesses, Lui urges them to seize the opportunity.

“Banks play a very unique role in people’s lives,” she emphasizes. “They are trusted, even if they are not necessarily seen as innovative. There is a big opportunity for banks to get out of their traditional mindset.”

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