Amidst the hustle and bustle of working this year’s Jack Henry Connect, I had the great fortune to attend some inspiring sessions focused on capturing commercial accountholders. It was clear from the start this challenge would require an entire ecosystem of financial technology – satisfying a diversity of businesses with equally diverse needs requires solutions that provide optionality and allow for a tailored strategic approach. Two talks that impressed me most on this topic were by the talented folks from Autobooks (a Banno™ plug-in solution). Grounded in human psychology, their ideas made me want to grab anyone who would listen afterward to share some exciting and actionable takeaways.
Behavior Begets Balances
The first thing you should know is there’s a big shift in business bank accountholder behavior playing out right now in your commercial portfolio and the business communities you serve. Perhaps you’ve noticed it. Odds are you’ve even played a part as a customer of your favorite small businesses. And this behavior is draining deposits from your business accounts.
I’m not talking about fraud. The culprit here is a slippery combination of savvy fintechs, busy business owners, and complacent financial institutions.
PayPal, Venmo, Square, Stripe (and the list goes on) have made paying for goods and services as easy as whipping out a smartphone. Consumers love the convenience. And loving to get paid (especially fast), small businesses have scrambled to accept each new form of payment that achieves mass acceptance. Customer money goes into an app. The business transfers it to an account at their bank or credit union. Life is good.
Until it’s not.
Two things are muddying this pretty payment picture for financial institutions. First, business owners are busy. Really busy. And while moving money from an app to a business account seems trivial, like most small things it’s easy to lose track of – especially when you wear many hats and use multiple financial apps (as most business banking accountholders do today).
Which brings us to the second problem: the headache of payments proliferation. The average small business is managing 5-12 payment types today. That’s a lot of balances to keep up with. Consequently, funds tend to sit in the receiving app a long time (sometimes indefinitely). Left unchallenged, these third-party apps will eventually become the primary deposit relationship which, you can be sure, is their ultimate goal.
Change Is in the Air
Multiple payment apps also make for a lot of cash flow sources to manage. This financial fragmentation is the reason, according to Ron Shevlin of Cornerstone Advisors, “an alarmingly high percentage of small businesses say they are likely to look for a new banking relationship in the next 12 months.”
On top of that, 59% of small businesses plan to shift to digital-only payments within the next two years or are already cashless. They are moving away from cash and checks entirely.
According to Autobooks, responding to these seismic shifts in business banking accountholder behavior begins with looking at things from the business owner’s perspective. When business owners go to the commercial section of your institution’s website, what tools do they see that will help them accept digital payments? If the solutions you offer are too big or complex to fit their basic needs, they’ll turn to a third-party app.
What happens when business deposits migrate upstream to payment apps? These accounts essentially become inactive – they’re zombie accounts. The business may be maintaining a minimum balance at your institution, but all the deposit activity is happening elsewhere in third-party apps, where you can be sure business debit cards and loans are conveniently being offered. These apps represent a real competitive risk because their revenue models have a nearly 80% overlap with your institution’s.
An Approach Focused on Business Accountholders
How can you bridge the gap and provide a better digital business banking experience? By giving businesses a simple, trackable way to get paid that works alongside their existing system and directs payments straight into their business account at your institution. This approach helps overwhelmed business owners get organized, so they stop missing payments and start conquering the chaos of receivables. It also saves businesses money over the fees charged by third-party solutions – something cost-conscious small businesses truly appreciate.
An exciting example of how this can work involves the new game-changing payment acceptance feature announced by Jack Henry that lets business accountholders accept payments directly in Banno Mobile™ via a simple tap of an NFC-enabled card or phone. With no hardware required, one-click enrollment, and incoming payments that go straight into the business’ account, this offering epitomizes a business accountholder-centric approach by solving one of the most common examples of financial fragmentation affecting small business owners today. This new capability is being delivered in partnership with Autobooks and will be offered as a standard feature of Banno Business™ banking in early 2023.
Sizing Up the Threat
Something I found particularly exciting was the competitive displacement identity reporting offered by Autobooks that can help an institution understand the size of the threat from the major third-party payment apps. It is a valuable tool that can examine your commercial portfolio and report on how many (and which) accounts are actively connected to PayPal, Square, Venmo, and Stripe, how many deposit transactions are coming in, and the amount of those transactions. It can even send you an alert when an account initiates a new relationship with one of these apps, giving you a chance to win the business accountholder back before they establish a relationship with the new third-party app.
Autobooks also offers a small business data report that provides a benchmark of activity your institution can expect within your asset range. It includes an option to receive a custom report and list of your business accountholders currently accepting payments via third-party apps.
In times of profound technological change, it can be hard to know which new tool or tactic to employ next. So, it was comforting to see solutions like these, presented at Jack Henry Connect, that shine a clear light on a smart path forward.
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