Commercial solutions offered by banks have typically been tailored to larger corporations, with a one-size-fits-all approach that often doesn’t meet the unique needs of small businesses. As a result, many small business owners have turned to consumer-focused products, which lack many of the key functions they need. The lack of compelling options available have driven many to seek financial solutions outside of their financial institution.

In a recent PaymentsJournal podcast, Tim Ruhe, VP, Head of Small Business Payments at Fiserv, Ryan Looper, Director of De Maison East, and Brian Riley, Co-Head of Payments at Javelin Strategy & Research, discussed the challenges small businesses face and the opportunities financial institutions have to better support their small business clients.

De Maison East is a beverage company founded in 2020, right at the beginning of the pandemic.

“Everything changed,” Looper said. “In that moment, it was like diving into a pool in the dark and hoping there was water there. One of the challenges was our customer base had just been decimated, because all restaurants were closed. This put a spotlight on connecting with customers and getting revenue going, getting accounts receivables and payables going as part of our operational load. It just felt like one of the things we needed to focus on.”

During the pandemic years, the company focused on examining its business processes and identifying potential growth strategies. While the beverage industry is well-established, it remains somewhat conventional in many ways, and many of De Maison East’s customers were still paying invoices by paper check.

Recognizing digital payments as a powerful growth driver, the company began to encourage its customers to make digital payments.

“It might sound a little far-fetched that digital payments would be innovative, but they definitely are for our business,” Looper said. “As we were thinking about scalability and the customer experience, we decided to go with a fintech partner. The move allowed us to give very fast feedback to our customers with regard to payments. To this day, we still receive a majority of our payments digitally, and it was a blessing in disguise that we could do that in a difficult time.”

The speed and transparency gained from the shift in payment processing made an immediate operational impact for De Maison East, which typically handles numerous smaller transactions. The improvements in the receivables process helped De Maison East optimize cash flow to focus more on its customer relationships and driving its business forward.

“One of the things we hear from small businesses is they’re spending close to 20 hours a week managing the back office and payments, and they’re not able to focus as many hours and cycles on their businesses they’d like to,” Ruhe said. “Businesses are finding themselves using lots of different tools from different providers and not necessarily going through their financial institution.”

Small businesses want to perform and automate tasks such as paying suppliers, receiving payments from customers, sending invoices, and performing transactions at their physical point of sale. In many cases, an integrated solution isn’t available to accommodate their needs.

The commercial offerings from financial institutions can be daunting because they are highly sophisticated. While they are capable, they are often not designed for companies with less than 30 employees.

On the flip side, consumer solutions don’t offer enough capabilities for small businesses. They may be able to pay bills, but an organization will have trouble paying suppliers. There’s also no invoicing capabilities or merchant services.

“What we’re finding is that there’s this Goldilocks segment,” Ruhe said. “How do financial institutions serve the small business segment and their needs while retaining the capabilities and the simplicity? There’s this new category, which is integrated small business solutions, that they’re trying to solve for.”

Although the lack of a fit-for-purpose solution has caused many businesses to partner with fintechs, many would still prefer a solution provided by their financial institution—if it were available.

“If a financial institution provided a small business with an easy to use and highly capable solution, it would be a huge advantage and very appealing, because it creates less dispersion of platforms,” Looper said. “We’re constantly in our financial institution, so if it was a home base, that would be incredibly advantageous.”

One main reason a small business solution offered through a financial institution is so compelling is that it’s a one-stop shop. Instead of paying for multiple platforms and spending time manually reconciling the information, the payment data can be consolidated in a single dashboard.

Another critical advantage is that banks can offer access to real-time payment rails like FedNow and RTP. Overall, the speed and efficiency gains that a financial institution can provide can have an exponential effect on small businesses.

The small business segment has been somewhat underserved by financial institutions, which is why many companies have turned to fintechs. As banks begin to tailor their small business offerings, they should start by taking a holistic view of their customers.

“If a financial institution had the ideal full relationship with a small business, what would that be worth?” Ruhe said. “I’m sure they have a need for business cards, and I’m sure they have deposit accounts. I’m sure they need, in many cases, invoicing capabilities or merchant services. What would be the value of that relationship? Put a number on it and do the math. Now you can say, how am I doing in terms of wallet share?”

Once an institution understands the full needs of their client, they can deliver an integrated experience that includes all the key jobs to be done and work to win the customer back.

“If you define that as your end state, it gives you a good road map,” Ruhe said. “Now you know what the value of the business is, you know how well you’re doing in serving that small business. You’ve done an assessment, and you have a clear road map for how to deliver an integrated solution. The customer doesn’t want to go to different places, he just needs the best possible set of capabilities.”

As financial institutions consider their small business solutions, they should understand that there can be a vast difference between organizations. A physician and a plumber might both be considered small businesses, but they have far different financial needs.

“It’s not just a one-trick pony about fixing the receivables and the cash flows, it’s getting deeper into the relationship with that business,” Riley said. “As the business grows, the relationship could move to treasury services and deposits and even bleed over to the consumer side of the business. Having that whole view is important in an area that’s somewhat amorphous because of the definition of a small business.”

Even though small businesses have varying needs, there are many common threads between them. One of those threads is they are constantly looking to their financial institution for help.

“The messaging to small businesses is important,” Looper said. “It’s a massive opportunity for financial institutions, especially in the beverage space, which is a bit of an analog space, to transition us over. We’re all using banks. We have our financial institutions. It’s a huge opportunity to bring us over and give us some tools to grow an important segment in the U.S. economy.”

For financial institutions, there are solutions that can help them deliver the key functions that small businesses require. For instance, Fiserv recently launched its CashFlow Central platform designed to support a small business’ accounts payable, invoicing, merchant services, cash flow management, and business card demands. The integrated platform can help financial institutions deliver the solutions their clients need and take advantage of a unique opportunity.

“We have a market of 34 million small businesses in the U.S., representing 43% of the GDP and 70% of GDP growth,” Ruhe said. “That’s $150 billion in value to financial services, so there’s a tremendous opportunity here. Small business is big business—it’s the heartbeat of America and the fuel of our economy. So I would say start tomorrow.”