The FI Payments’ Innovation Survival Kit

Banks must let go of the fear that merchants should use them and not an alternative-solutions provider and make it easier for them to self-discover or choose a product or service as opposed to dictating services based on what it integrate into, contends a small-business banking expert at Capital One Financial Services.

In a recent podcast interview with Market Platform Dynamics CEO Karen Webster, Brian Hamilton Cap One’s head of national small business banking and digital platforms, cited Cap One’s Spark IQ service as an example of how a financial-services provider can help smaller merchants find the products and services they need, regardless of who offers it. Spark IQ doesn’t sell anything, but it gets the conversation going to help solve problems, he said.

Banks traditionally have not been known to embrace disruption. And that’s especially the case with the disruptors themselves, particularly when they compete in sectors such as merchant point-of-sale solutions. But with today’s increased ability for smaller companies to develop viable solutions, a bank’s ability to suggest third-parties’ options might make the difference between a long-term and short-term small-business relationship, according to Hamilton.

Indeed, smaller businesses traditionally have not benefited to the same extent as larger commercial platforms when it comes to invoicing and integrated payments, both with regard to payables and receivables, Hamilton noted in a recent podcast interview with. But that’s changing.

(Jump to 1:25) “There are a lot of disruptive players in the space,” he said. “I think there are a lot of newer technologies that kind of help solve the problem for small businesses.”

As a bank, Capital One is seeing the increased importance in helping do a lot of the legwork a small-business owner might need but doesn’t have the time to do when it comes to finding the innovators able to address a specific need.

The bank’s research has found that, though payment itself is important, another important subset is the integration of information around it, such as the downstream impact of reconciliation and double-entry into accounting systems, Hamilton said. While speed of payment is important to sellers, some of the peripheral integrations around payments and data are where Cap One is hearing small businesses saying are the biggest pain points, he added.

The lack of integration for such solutions with small-business platforms might be a problem for the companies, but it also creates opportunities for financial institutions providing services to such customers, Hamilton said.

(Jump to 3:08)“There’s a big opportunity for us, especially as kind of a more digital financial-solutions provider for small business, to put ourselves in their shoes and really feel where those pain points are for the average small-business owner,” he said.

Because many of the solutions a small business need likely exist, the issue isn’t a technology problem; it’s an integration, data and interoperability dilemma. And the small-business owner is looking to the financial industry asking, “why aren’t you solving this for me,” Hamilton said.

Perhaps partly out of habit because they typically have existing relationships with banks, small businesses tend to turn to the financial institution for help. And there are solutions available from others that many small businesses already are using, such as digital bill-payment solutions. Banks don’t always provide similar solutions, so small businesses often are left to find them on the own, Hamilton said.

As such, this situation creates an opportunity for financial institutions to embrace the disruptive technology through partnerships and by embedding into their own solutions, he added. Providing support for discounting early payments, for example, is a technology not integrated well in the banking sector. So it creates an opportunity to work with such solution providers to help small businesses to fill that hole, Hamilton said.

(Jump to 11:31) “There’s a long list of players that are trying to serve the payments space in general for small business,” he said. “But again payments could mean everything from taking payments at the point of sale to eInvoicing and billing integrated to your financial services platform.”

With banks not traditionally known as enablers of third-party solutions for their customers, it represents a big leap of faith doing so will make for a stronger tie with the customer, Hamilton said.  As such, banks have to earn their respect and trust through hard work, organizational focus and fundamental technological support, he noted.

After all, it’s not the vision a bank offers that a small-business owner will tell others about. It’s the interaction in working to make life easier for the business owner that will, Hamilton said.

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