How Banks Can Meet SMB Demands for Omnichannel Payments

Small businesses want to offer their customers the latest digital payment tools. There are many specialized solutions available but small businesses often prefer dealing with a single financial institution. Here are several options for how community banks can keep up in payments.

Payment methods are constantly evolving and to meet the expectation of customers in today’s omni-commerce world, small businesses want to offer services such as mobile app payment processing and text-to-pay — but need a trusted provider to make it happen. What better partner than their community bank?

Research shows that small businesses overwhelmingly prefer to have all their banking and credit needs met by one financial institution. According to BlueVine, nearly nine out of ten small businesses (87%) consider it important for a single provider to handle their credit and banking services. Additionally, a recent study by J.P. Morgan and Forbes shows that 52% of executives plan to consolidate their treasury and payment service providers.

Single Source Banking:

How many small business owners prefer a single, primary financial institution for their banking needs

Community financial institutions can assist businesses in meeting their goals by partnering with a payments provider to offer merchant services. This partnership will increase customer satisfaction, retention rates, competitive differentiation, and ultimately, level the playing field with larger regional and national banks.

What Capabilities Local Businesses Want

Broadly speaking, merchant services enable businesses to accept and process electronic payment methods. The emergence of omnichannel commerce, where the payment process can happen online or offline, and the ability to accept payments virtually and in-person are now integral functions of a small business customer. Community banks and credit unions must recognize that offering small businesses a credit card terminal, competitive pricing and timely deposits is no longer enough.

According to a survey by Paysafe, 52% of customers and 65% of businesses want more payment options. These can include methods beyond credit cards like cryptocurrencies (decentralized digital currencies) and digital wallets that store payment information and passwords.

Offering streamlined services is foundational in today’s business ecosystem. When the small business owner views the community bank as a business partner, it creates strong, long-lasting customer relationships. Companies that use their community financial institution for their merchant service needs will also bring in more revenue for the bank.

Research by payments provider Elavon shows an 88% increase in average revenue, an 85% increase in deposits and an 80% increase in loans from businesses that use their community bank for merchant services versus those with only a checking account.

Working with a third-party payments provider is an opportunity for community financial institutions to provide customers with the type of all-in-one services they’re looking for. It can also be a tool to engage prospective customers. For example, many payments providers now offer a broad range of services beyond traditional payment processing, including:

  • Inventory management
  • Sophisticated payroll management
  • Loyalty programs
  • Integrated marketing

According to the Paysafe study, 53% of participants rank reliability as the top priority for U.S. small- and medium-sized businesses when selecting a payment provider. Followed by:

  • Cost (47%)
  • Fraud management (29%)
  • Ease of integration (28%)

Types of Models and Evaluation Criteria

A community bank’s success in becoming an all-in-one financial solution for its customers is directly tied to the performance of its merchant provider. The strengths and limitations of a potential partnership will positively, or negatively, impact the relationship between the bank and its small business customers.

Merchant providers work with financial institutions in a range of models. Each offers varying degrees of ownership, flexibility and associated economics. Here are three primary models:

Agent model
In this arrangement, the bank determines the level of support it needs from the payments provider and how the payments provider interacts with its customers. The bank is offered revenue share from the payments provider.

Referral model
The referral model offers the lowest risk level to the bank, allowing the bank to contract a payments provider and receive revenue share based on percentages. Customers are referred directly to the payments provider for services.

Direct model
Based on the bank’s needs, the direct model can vary. This model can include only processing, joint ventures, integrated service vendor, payment facilitator or a combination. With the direct model, the bank manages and runs its merchant services program, handling relationships, pricing, and regulatory and operational compliance. Direct models are not typically employed within community banks.

When exploring potential merchant services providers, banks and credit unions should consider the following as guideposts for determining the viability of a payments provider:

  • Financial considerations
  • Cash flow and currency
  • Vertical support
  • Operational efficiency
  • Risk management and compliance
  • Support structure

No matter the model, a strong partner gives small business owners ways to increase revenue, process orders, and manage inventory while meeting customer expectations securely and risk-free. If your financial institution is exploring how to expand your offerings through payment process and merchant services, we encourage you to read more in our white paper on selecting a payments provider.

Elan Advisory Services partners with financial institutions to grow their business through our outsourced credit card program, mortgage solutions, and our all-in-one merchant processing business solution platform. Our dedication to our partners, growth philosophy, and investment in evolving technology has made us a leader in the industry since 1968.

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