Confounding this finnovation over the last decade or so has seen a wide array of fintechs emerge, often focused on small niches of the SMB market and more willing and able to provide the bespoke experience these businesses need.
Faced with this, many in the industry are growing increasingly pessimistic about merchant acquiring and many banks have exited the market altogether. The risk of doing this however is far greater than just losing out on the merchant acquiring market - forecast to hit US$41.75 trillion globally by 2026. Many fintechs who win on merchant acquiring are now offering their SMB customers wider banking services via Stripe and Square capital. This leaves banks at risk of being pushed down the value chain and disintermediated from both the customer and the data they currently hold as a unique selling point against new entrants.
Despite the challenges, however banks remain uniquely positioned to win SMBs back from the fintechs. Banks have all the individual components needed to meet the challenges faced by SMBs. The problem for banks is that many of these components are often siloed within different teams and different parts of the bank. The end result of this can be a disjointed experience for the end, SMB customer.
So, what can banks do to start winning back SMBs? Our team has outlined three practical things banks can do now, to begin this process.
One of the key differentiators between banks and fintechs is CX. Fintech products are often no more competitive than those of the banks but for the end customer the fintech experience is often smoother and more intuitive.
A good indicator of experience is NPS. Within Financial Services this is, on average, 40, but many banks around the world fall below that figure. As a comparison, the average NPS in the technology industry is around 60. A recent study suggesting that US banks are providing at best "suitable" experiences further indicates the challenge banks face here. As it stands, bank legacy systems and processes act as a barrier to delivering the slick and speedy experiences available from Amazon, Toast, Square and others.
For many banks, building digital-first experiences isn’t a core capability. A core principle to design around is “driving instant resolution”. To do this, banks must identify the activities which currently require human intervention - whether that is a customer calling a contact center, or an employee executing a manual process.
Bank call centers and branches are valuable assets for issue escalation that most fintechs or challenger banks cannot compete with. Banks can digitize the “happy path” by identifying the activities that are easily resolved, even if some situations still require human intervention.
Work in stages, from the customer inwards. If a bank is unable to quickly digitize back-end operational processes, there are workarounds to mimic a fully digitized experience. Working with suppliers with pre-built, customizable components for example, means front-end experience can be quickly upgraded and configured to look and feel like part of the wider banking experience.
This “instant digital resolution” meanwhile gives a bank time to transform its operational and fulfillment processes behind the scenes.
One of the primary pain points for SMBs is also a big driver of cost for banks – reconciliation.
The difficulty small businesses face in understanding daily revenues, managing issues and understanding their final settled income is a huge time-drain for business owners. While clear reconciliation is key to any business, for SMBs, the impact on cash flow can be the difference between surviving and thriving.
Making reconciliation as easy for merchants as logging into their bank platform, can empower SMBs with insights into the KPIs that drive their business and the dynamics driving their customers and markets. A bank platform is the first place merchants go to manage their finances, including transactional insights here which combine data sources from the financial institution, processors and other 3rd parties is a huge value add.
It’s a win for the bank too. A bank will see significant cost savings from a reduction in paper statements, and fewer calls to the call center. For a mid-sized bank with tens of thousands of merchants, this cost saving can be $5m+ per annum.
This data already exists within banks. Digitizing it and playing it back to customers to allow them to self-serve their own needs improves customer satisfaction and reduces operating costs
Building a single source of reconciliation can be a complex task. Some segments will have less complex needs than others. To start, understand the segments that are simpler to serve.
With the above measures in place, customer retention and stickiness is going to be easier to achieve. With market share stabilized, now is the time to look at better onboarding.
Currently, banks have around 3-5% market penetration in merchant acquiring while best in class is closer to 15-20%. In other words, there’s a huge market opportunity here and banks can make inroads into this revenue pool with better onboarding.
One of the best ways to convert an existing back-book is to increase awareness of merchant services and allow customers to onboard with a few easy clicks. Embedding a marketing and onboarding widget into online banking is one way of being able to drive these benefits. Having an onboarding flow embedded into the high engagement business banking channel can also drive increased conversion, whilst drop-outs can be minimized by pre-populating applications with banking CRM data.
The data speaks for itself here. A better onboarding journey from quote to application to agreement can triple the rate of completions compared to broken journeys that leave customers frustrated.
The message for the banks then is clear. Don’t give up on merchant acquiring. Not only would this mean losing out on a growing market and denying valuable products and services to SMBs that badly need them, it would also be a move with existential implications for the banking sector and a green light to fintechs looking to expand their banking offer.
Banks have an opportunity to not just drive down the cost of their acquiring business, but to use it to create a foundation for deepening relationships with SMBs.
Making it easy for SMBs to interact, creating a single source of reconciliation, and maximising your current data advantage are three key ways that banks can create compelling and competitive services that drive SMB engagement and retention. Combined these measures can improve CX allowing banks to compete with fintechs on digital experience, while retaining an advantage in terms of breadth and depth of product offerings.
Experience-as-a-Service platforms like Pollinate are helping banks break down their silos to deliver better CX and adapt to the needs of digitally native customers. Check out the Pollinate platform and get in touch with our team.
