Peering Beyond The Bank To Fill SMBs’ Financial Admin Needs

By now, the surge in FinTech competition and regulatory initiatives designed to spur innovation in the financial services market have made it clear: legacy banking often fails to live up to the rising expectations of small business customers.

Michael Nuciforo, co-founder and CEO of Australia-based small business FinTech Thrive, says a look a the data can reveal just how much small and medium-sized businesses (SMBs) are struggling with a lack of access to adequate financial services. His firm’s own analysis of Australia’s Big Four banks revealed lengthy wait times and application processes, without much support for the entrepreneur.

“The average business loan application had 22 questions, and many required having to transfer to a call center agent to manually provide supporting documentation,” he recently told PYMNTS, adding, “the average business loan application time was a staggering 17 days.”

The result is that small businesses are spending dozens of hours every week to manually manage their own finances. Yet that’s not to say traditional financial institutions can’t play a role in addressing this friction. As Nuciforo explained, the small business financial services ecosystem must widen its reach beyond banking to fill the gaps, with potential for financial institutions to collaborate to strengthen the overall banking experience.

Beyond The Bank

With financial institutions relying on legacy infrastructures, often without the agility required to improve systems and services, FinTechs have an open door to step through and disrupt the space.

“True innovation only comes when you throw out the rulebook,” said Nuciforo. “Unfortunately, the big banks are reluctant to change anything as they are not prepared to cannibalize their existing revenue streams.”

Traditionally, he said, financial institutions rely on a one-size-fits-all approach to servicing their small business customers. But the expectations of small businesses are shifting, and at the same time, the emergence of FinTechs targeting the small business community has helped to fuel greater expectations in service.

Adding fuel to this trend is the democratization of financial literacy. Small business owners now face lower barriers to resources, data and expert advice, while social media platforms are allowing entrepreneurs to collaborate and share best practices.

What all of this means, in short, is that the bank no longer holds a monopoly on guiding financial strategy for a small business.

“Expectations for how businesses manage their money are being shaped by experiences outside of the banking industry where content, interactions and features are much richer,” said Nuciforo. “The role of banks as a trusted financial advisor has been eroded and replaced by other sources.”

The Small Business Experience

Key to addressing small businesses’ proliferating expectations is understanding that banking is only one component of what SMBs need.

According to Nuciforo, there are instead four factors: “banking, accounting, tax and lending.”

What’s important to note is that, while legacy financial institutions may have fallen short, they still play a valuable role in elevating the small business experience. Thrive itself is choosing not to pursue a banking license, but instead is collaborating with an existing regulated bank to provide account and other services to clients.

With Australia moving ahead in its own open banking journey, the financial services ecosystem — banks and FinTechs included — will have a greater opportunity to collaborate and offer a more prolific set of functionality to SMBs. For instance, Thrive, which today can facilitate automation through both identifying an action that needs to be taken — like paying an invoice — and then actually fulfilling that action, will be focusing on embracing data capabilities to automate and accelerate small business lending workflows.

But beyond mixing and integrating a variety of products into a single solution for small businesses to manage finances, at the heart of success in this space is focusing on the end-user experience.

“If you simply took the time to sit down with a business owner as they managed their finances, you would quickly determine that banking is only part of overall financial management activities,” said Nuficoro. “If you take a customer-needs approach — instead of a business-needs approach — you can quickly identify that there is a whole range of services that sit side-by-side with banking services that can be integrated to make the life of a business owner much easier.”