The pandemic has altered the business banking landscape, in more significant ways than one.
The Small Business Administration’s relief program had many small business owners turning to financial service providers other than their usual bank to access aid funding, spurring conversation about the opportunity for bank-switching to churn up competition in the sector.
The coronavirus crisis also led to widespread digitization of the enterprise. That, combined with the closure of physical bank branches and social distancing mandates, has businesses embracing digital platforms to manage finances.
Arjun Thyagarajan, co-founder and CEO of Wise, recently told PYMNTS of another key impact of the pandemic on the business banking market.
“We’ve seen more and more standalone mom-and-pop businesses are now part of ecosystems,” he said. “For example, a restaurant that was a standalone business is now part of Doordash or UberEats. This is happening to all kinds of businesses across all verticals.”
The need to digitize had many small and medium-sized businesses (SMBs) flocking to these online ecosystems that offered an environment of support through a range of integrated services — including financial products like the ability to accept payments. This is a major opportunity for the business banking arena, said Thyagarajan, and for the ecosystems to imbed banking products within their portals to further improve the experience of the end-user.
Non-Banks’ Banking Opportunity
There is growing interest among non-bank and non-FinTech businesses to imbed banking functionality within their solutions, particularly within these digital ecosystems as well as B2B Software-as-a-Service platforms, said Thyagarajan.
Their motivations for doing so are threefold.
First, he said, it opens up an entirely new revenue stream, particularly when the ability to issue cards is added into functionality. Second, which Thyagarajan noted is perhaps an even bigger motivation, is to cultivate an environment of enhanced user engagement.
Traditionally within these ecosystems, money flows into the platform, but businesses deposit those funds into their bank accounts outside of the ecosystem. The ability to keep those deposits within the ecosystem ensures that users remain inside as they manage money, accept payments, make payments to their own vendors, and more.
Finally, Thyagarajan pointed to that elevated user experience that can now include payments as well as banking all under the single brand of a digital ecosystem or SaaS provider.
“It really helps, and it’s one thing off your plate, if you don’t have to go out and apply for a bank account,” he noted. “Banking is imbedded inside the ecosystem.”
A Resilient Ecosystem
At a time of so much market volatility, offering businesses choice when it comes to where they do their banking is an important part of maintaining a financially resilient small business community. According to Thyagarajan, by offering banking seamlessly imbedded within these digital ecosystems or SaaS platforms, these providers can actually foster an environment of financial health.
Some ecosystems will offer lucrative incentives for businesses to use their embedded banking offering, for instance. At the broader level, Thyagarajan explained that integrated banking provides faster access to capital for end-users.
“What ends up happening is once the embedded banking and payments piece is built in, money moves not just from slow to fast, but from slow to instant, because it’s imbedded within the experience itself,” he said, “which means you’re getting the business money as quickly as possible.”
He pointed to one example of businesses using the Shopify platform to sell goods. Some had taken up to a week to fulfill orders, but once Wise integrated banking capabilities for Shopify sellers, businesses are able to fulfill orders in one day.
“It makes a big difference, because you’re able to see your cash flow and do more business,” added Thyagarajan. “You have access to a bank account and funds inside where your business lives.”
The demand for more SaaS and online ecosystems to integrate a banking offering into their own portals is on the rise, he said. But these service providers aren’t necessarily looking to build a banking product themselves, due in part to the complexities and costs associated with managing compliance alone.
Wise recently announced its latest funding round that will help position the company to address this growing demand of imbedded banking capabilities. It’s one approach of several that the business banking landscape has seen as it evolves in response to rapidly-changing market demands.
“It is open banking, in a sense,” said Thyagarajan. “It’s not just about opening up the account origination experience, but fully managing and servicing it — that’s the piece that non-FinTech companies are not comfortable with, which is where we come in … The market is really big, and different companies are taking different approaches.”