Building a Sustainable Revenue Stream: The Power of Small Business Payments NACHA Payments 2015

Transcription

1 Building a Sustainable Revenue Stream: The Power of Small Business Payments NACHA Payments 2015 Mercator Advisory Group and BAI

2 Your Presenters Are: Patricia Hewitt William Hippensteel Vice President, Managing Director Chief Content Officer Mercator Advisory Group BAI Mercator Advisory Group and BAI

3 Presentation Outline Dynamics and Demographics of the Small Business Market What Small Business Owners Need BAI Small Business Banking Insights Small Business Innovations and Best Practices Key Takeaways Mercator Advisory Group and BAI

4 Small Business is Big Business 28.2 million Small Business Firms* in the United States 99.7%...of U.S. employer firms 63%...of net new private-sector jobs 48.5%...of private-sector employment 42%...of private-sector payroll 46%...of private-sector output 37%...of high-tech employment 98%...of firms exporting goods 33%...of exporting value *an independent business having fewer than 500 employees Source: Small Business Administration Mercator Advisory Group and BAI

5 Younger, More Affluent Consumers Have a Larger Share of the Small Business Banking Market 25% of U.S. consumers report having a small business bank account 37% of year olds 23% of yr olds 28% of 65+ yr olds 44% of 75-99K Earners of >$75K are more likely than average to have a small business bank account 36% of $100K+ 55% of wealth management accountholders Source: Mercator Advisory Group ConsumerMonitor Survey Series, 2013 Mercator Advisory Group and BAI

6 Small Business Owners Need a Wide Range of Services Working Capital Cash Management Marketing Analytics Inventory Control Tax Compliance Mercator Advisory Group and BAI

7 Banks Retain the Highest Market Penetration and Primary Payment Provider Relationships Q4. /Q4a. Use of providers for card acceptance/processing (Base=all) Acquiring bank POS terminal provider Third party processor Gateway processor for online payments ISO VAR or ISV for specialized POS applications Don't know 3% 1% 17% 14% 8% 4% 11% 20% 34% 33% 45% 45% 43% 66% Use provider Primary provider Key Highlights o o o Two thirds of SMEs use an acquiring bank, and 82% of these bank users note that the bank is also their firm s primary bank; an additional 16% say they obtain other banking services, although not primary (Q6). While 60% overall say they use primarily one provider, and 37% use two or more (Q5), it is notable that 76% use at least one provider other than a bank or ISO (Q4). While banks enjoy a leadership position, many SMEs use multiple providers. Specialists such as terminal providers, gateways, VARs and ISVs hold important market share positions. Source: Mercator Advisory Group/Vantiv SME Survey, March 2014 Mercator Advisory Group and BAI

8 New Market Entrants are Ready to Lend Money to Small Businesses Online Alternative Loan Market is expanding at a rate of 175% YOY. Source: State of Small Business Lending, Harvard Business School working paper, 2014 Mercator Advisory Group and BAI

9 What Small Business Owners Want Best in breed small business banking providers are converging around three key strategies: INTEGRATED DATA - Dashboards - Data Management - Data Security SIMPLICITY - Pricing - Account Management - Onboarding MOBILE - RDC - Payment Acceptance - Cash Management Mercator Advisory Group and BAI

10 How Are Traditional Financial Institutions Meeting These Needs? Key Learnings from BAI Small Business Banking Insight Survey Mercator Advisory Group and BAI

11 More Resources Dedicated to Small Business Banks are hiring FTEs and buying technology for small business Retail Banking FTEs are down overall, but banks are investing more in both small business and private banking personnel. Many banks are making new LPOs a priority for growth. Continued focus on getting more small business relationships through the distribution network. Mercator Advisory Group and BAI

12 Staff Functions are Shifting 100% 80% 60% 40% 20% 0% 0% 33% 22% 16% 12% 11% 38% 32% 24% 13% 7% 41% 31% 29% 24% 26% -20% -40% -60% -4% -12% -14% -21% -40% -22% -28% -31% -32% -53% -5% -8% -13% -13% -15% -15% -23% -30% -47% -80% -100% Branch Management (Regional BM, BM, Assistant BM) Teller/ Teller Supervisor/ Universal Teller Branch Customer Service Branch Platform Licensed Financial Specialist Private/Wealth Management Small Business Staff Community Super Community Regional Super Regional Large 30. How has the number of people in each of these roles changed in the past two years? Mercator Advisory Group and BAI

13 Small Business Priorities Within Organization NOTE: Respondents spend at least 25% of their time working with small business customers and/or small business projects Small Business Priorities Within Organization Average Rank Total Credit facilities 3.3 Payment acceptance 4.1 Security 4.3 Transaction reporting tools 4.3 Payroll 4.4 Compliance 4.5 Accounting and tax reporting 4.9 Inventory management 6.3 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6 Rank 7 Rank 8 Q58. Please rank the following areas of investment from most important (top) to least important (bottom) for small business efforts within your organization. Mercator Advisory Group and BAI

14 Net Loan Growth is Weak More Resources Dedicated to Small Business Banks are hiring FTEs and buying technology for small business Retail Banking FTEs are down overall, but banks are investing more in both small business and private banking personnel. Many banks are making new LPOs a priority for growth. Continued focus on getting more small business relationships through the distribution network. Good loan growth not offset by Commercial RE runoff Strong growth in small business C&I lending and regional commercial real estate. Small business credit card growth is returning for the large banks. Even with this strong growth in small business lending, the run-off from commercial real estate is resulting in negative net growth. More sources of alternative lenders. Mercator Advisory Group and BAI

15 Alternative Lending Sources as Competitive Threats NOTE: Respondents spend at least 25% of their time working with small business customers and/or small business projects Another non-bank lender Alternative Lending Sources as Competitive Threats Average Rank Total 2.7 Personal credit card 3.8 Second mortgage 3.9 Another online lending group 4.0 Lending Club 5.2 Friends and family 5.4 PayPal 6.1 Kickstarter 6.6 Sam's Club 7.4 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6 Rank 7 Rank 8 Rank 9 Q56. Please rank the following alternative lending sources from the biggest threat (top) to smallest threat (bottom) in terms of small business lending competition. Mercator Advisory Group and BAI

16 Greater Focus on Cash Management More Resources Dedicated to Small Business Net Loan Growth is Weak Banks are hiring FTEs and buying technology for small business Retail Banking FTEs are down overall, but banks are investing more in both small business and private banking personnel. Many banks are making new LPOs a priority for growth. Continued focus on getting more small business relationships through the distribution network. Good loan growth not offset by Commercial RE runoff Strong growth in small business C&I lending and regional commercial real estate. Small business credit card growth is returning for the large banks. Even with this strong growth in small business lending, the run-off from commercial real estate is resulting in negative net. More attention being given to an underpenetrated deposit base Shifting from micro businesses is driving higher balances and profits. Less than 5% of small business customers have cash management services. Digital cross sell and packaging starting to emerge. Greater focus on Remote Deposit Capture. Mercator Advisory Group and BAI

17 Small Business Mobile Deposit Capture Usage NOTE: Respondents spend at least 25% of their time working with small business customers and/or small business projects 100% 90% Mobile Deposit Offered % Using Mobile Dep. Reasons More Not Using 100% 100% 7% 90% 90% 80% 80% 80% 70% 37% 70% 70% 59% 60% 60% 60% 50% 50% 50% 40% 40% 40% 30% 56% 30% 30% 22% 20% 10% 0% No, and no plans to offer No, but will offer in next 1-2 years Q51. Does your institution currently offer mobile deposit capture services to small business customers? Q52. What percent of your small business customers are currently using mobile deposit capture services on, at least, a monthly basis? Q53. What is the main reason more small business customers are not using your mobile deposit capture service? 20% 10% 0% 17% Mercator Advisory Group and BAI % 10% 0% 9% 11% Not enough checks received to justify Security concerns Deposit takes too long to post to acct Service is too expensive

18 Small Business and Payments It s Complicated Mercator Advisory Group and BAI

19 There s a Lot of Competition Among Providers Source: Mercator Advisory Group/Vantiv SME Survey, March 2014 Mercator Advisory Group and BAI

20 It s a New Playing Field With New Rules Future merchant-provider relationships may be as defined by technical capabilities as by service and cost. Mercator Advisory Group and BAI

21 Mobile Devices are a Catalyst and Enabler for Merchandising, Payments, and Security Payment Origination Device Remote Payments Hardware-authenticate d remote payments Local payment via cellular channel Local payment via NFC and payment credentials Multi-Factor Security Device Device fingerprinting LBS-GPS and Wi-Fi Device IDs NFC/Secure Element PIN Entry Biometrics Consumer Experience Manager App Mediated Advertising Location Services Merchandising Coupons Content Integration Loyalty / points Mercator Advisory Group and BAI

22 Innovation Trends Mercator Advisory Group and BAI

23 Key Innovation: Data Integration Integration of banking & payment data for better management Capture customer information in the banking data that can assist owners manage their company. Better integration of cash flow, receivables & payables to streamline activities. Managing omni-channel experiences for small businesses like consumers. Mercator Advisory Group and BAI

24 Capital One Spark Pay Spark Pay enables small business owners to take credit card payments and manage finances using their own mobile and digital devices. Capital One provides merchants with payment information to manage their inventory and marketing. They can also create custom offers for customers, customize receipts with social media links, manage inventory across channels, and more. Transactions Banking Offers Settings Mercator Advisory Group and BAI

25 Yodlee Small Business Mobile Cash Flow Forecaster Yodlee s small business mobile cash flow forecaster provides budgeting to expense analysis, cash flow projections, and even collaborative tools for managing shared finances all with the ability to aggregate information among a variety of business and personal accounts. Mercator Advisory Group and BAI

26 Key Innovation Simplifying Solutions Integrating Data Integration of banking & payment data for better management Capture customer information in the banking data that can assist owners manage their company. Better integration of cash flow, receivables & payables to streamline activities. Managing omni-channel experiences for small businesses like consumers. Providing simple solutions to complex activities Focus on transparency, simplicity, efficiency, and feedback. More use of customization, automation and greater analytics. Looking outside of basic banking needs to provide client-centric solutions beyond transactional products. Mercator Advisory Group and BAI

27 Small Business Innovation: Simplicity Barclays Business Current Account gives a Loyalty Reward where the longer they bank with Barclays and the more money they put through their account the more bank charges will be given back. The program provides Simple transparent Price Plans designed around the way businesses make and receive payments as well as a Unique Price Plan Guarantee where customer contracts are reviewed each year and if a different plan could save customers money then they will be moved to that plan. Mercator Advisory Group and BAI

28 First National Bank of South Africa Single Fee Pricing Single Fee Pricing Option (SFPO) by First National Bank of South Africa provides smaller businesses a fixed monthly fee that they would be able to plan and budget for while also offering a high value for money pricing option. Mercator Advisory Group and BAI

29 Barclays Bank Business Abroad Barclays Business Abroad is a one-stop-shop to help support small businesses embark on trading internationally for the first time. This unique offering in the market provides a package of guidance, discounts and tools to manage all the key risks and challenges as they trade internationally. Since the launch in October 2012, in excess of 5,000 customers have signed up. Within 3 months of signing up, over 65% of customers have made at least 1 international payment. Mercator Advisory Group and BAI

30 Key Innovation Mobility Integrating Data Simplifying Solutions Integration of banking & payment data for better management Capture customer information in the banking data that can assist owners manage their company. Better integration of cash flow, receivables & payables to streamline activities. Managing omni-channel experiences for small businesses like consumers. Providing simple solutions to complex activities Focus on transparency, simplicity, efficiency, and feedback. More use of customization, automation and greater analytics. Looking outside of basic banking needs to provide client-centric solutions beyond transactional products. Mobile migration is slower for SBs, but evolving Emphasis on use of analytics, social media, digital channels, integrated value propositions and mobile sales. Co-creation process in design of products, pricing, delivery and communication. Mercator Advisory Group and BAI

31 BBVA Compass Business Mobility Bundle BBVA Compass has designed a Business Mobility Bundle for micro businesses as a set of features it hopes will appeal: online and mobile banking with a free tablet no monthly fee remote check deposit a card reader Mercator Advisory Group and BAI

32 CaixaNegocios Community CaixaNegocios Community is a social network aimed at small businesses offering tools where businesses can find and contact possible suppliers or new customers. They can also keep up with the latest from their professional sector thanks to news segmented by professional sector. Since the launch of the new business segment in March 2014, 9,308 users have registered and more than 1,500 applications have been downloaded. Mercator Advisory Group and BAI

33 Small Business Innovation: Mobile fastpay from DenizBank is a handsfree payment system whereby merchants have a web platform account plugged into DenizBank s system that enables you to exchange data and information with other smart technology. The system allows merchants to push out campaign messages to smartphones of potential customers in the store s vicinity, track store entrants and identify customers when they are ready to make a transaction. At the point of purchase, the merchant uses the web platform on their tablet to identify the customer and trigger payment. A receipt is sent to the customer s smartphone, providing them with an entirely hands-free payment process. Mercator Advisory Group and BAI

34 Key Takeaways Mercator Advisory Group and BAI

35 Small business clients want simplicity and appreciate acknowledging their personal account relationships. Small business owners need more than just basic banking services, offer specific enhanced services such as cash management, payment acceptance, or analytics. With technology-based offerings, banks and ISOs have the potential to defend their position, get closer to customers, and grow revenue. Small and medium-sized merchants are already multichannel businesses. Consumer payments are increasingly being embedded in other commerce-related transactions. Business payments are where inefficiencies reside and are ripe for new solutions. Mercator Advisory Group and BAI

36 Contact Us for More Information Patricia Hewitt William Hippensteel (781) (312) Mercator Advisory Group and BAI