Millennials are changing what small-business owners want from their banks.
They jump on new technologies as soon as they’re released. Members of this demographic, ages 25 to 40, are comfortable turning to nonbank fintech providers and spreading their loyalties across multiple institutions. They want their banks to offer capabilities that may have previously come from third parties, such as expense management and payroll services, and to partner with fintechs if necessary to deliver them.
Banks can gain a competitive edge — and perhaps new sources of fee income — by appealing to this growing segment of business owners. Millennials voiced a willingness to pay for value-added services in a recent report about small-business banking and millennials from Aite-Novarica Group.
“This is not just about appealing to a small band of younger customers,” said Gilles Ubaghs, a strategic advisor on the commercial banking and payments team at Aite-Novarica and author of the report. “It’s what all businesses are expecting, and it’s not something that will change. In all my years as an analyst, I’ve never seen a gap as strong as I have between millennial-run small businesses and the boomers.”
Challenger banks such as NorthOne and Novo and traditional banks such as BMO Harris Bank in Chicago all say the millennial small-business market is important to them and are refining how they serve it.
“Many millennials are aging out of student debt, getting into their prime earning years, and have excess capital,” said Brian Kale, director of customer success at Novo. “Many are looking to leverage the experience they gained in work or school to start a business.”
Data integration is one area where banks can look to improve, Ubaghs said. The Aite-Novarica report found that 42% of millennials are extremely challenged or challenged by the need to manually pull data from their bank into the software they use to run their businesses. Only 18% of small businesses run by older owners felt the same.
“Millennials do not want to jump across numerous systems that don’t speak to each other,” said Ubaghs. “They are willing to shop around for it.”
Both NorthOne and Novo let users integrate popular software — such as Xero and QuickBooks for accounting, and Shopify and Stripe for e-commerce — with their banking platforms. One of Novo’s more unusual integrations is with Slack, meaning account transactions are sent to the business owner’s Slack channels.
NorthOne also has integrations with accounting software from Expensify, Freshbooks and Wave.
“The biggest request from millennial customers is, ‘Right now I’m in a situation with 10 to 12 pieces of software to run my business, but NorthOne is the place I go to first, and I want to see as much aggregation and richness in that one place,’ ” said Justin Adler, co-founder and chief operating officer of NorthOne.
NorthOne regularly surveys its 320,000 U.S. business customers, about 50% of whom are millennials. Adler found three recurring reasons customers switch to NorthOne from traditional banks: a better mobile experience, software integrations and faster customer service. NorthOne lets users schedule a time for an agent to call them.
Meanwhile, Novo has automated many aspects of its
Ubaghs says small-business fintechs have the potential to grow into serious competitors for banks. In fact, 70% of millennial respondents use a nonbank fintech company for financial services. Only 56% of Generation X and 30% of baby boomers and older do the same, according to the Aite-Novarica report.
At the same time, banks have breadth, name recognition and trust.
BMO Harris, which has $166 billion of assets, is weaving technology into the branch experience to foster closer relationships between bankers and customers. It does not have data on how many of its business customers are millennials, but “they are a critical component as we look to grow the small-business book,” said Niamh Kristufek, head of small-business banking at BMO Harris.
As of March 2021, bankers in all BMO Harris branches had access to a program that let them open a small-business customer’s deposit account, credit card and loan in one go, using the same customer data across all elements. The speed and efficiency of such a system is meant to free up bankers to spend more time speaking with customers about their businesses.
Customers can also apply for small-business deposit accounts and credit cards together at home; they will be able to apply for loans in the same session later this year. BMO’s goal for later in the year is to connect the two systems so business owners can begin an application at the branch and continue it seamlessly at home, and vice versa.
“Digital lets you run the day-to-day and a human is there when you have a problem,” Kristufek said.
BMO Harris built this all-in-one application, which it calls Business Banking Express, in-house. It turned to a vendor to create a conversational tool meant to inspire more substantial conversations, with questions and prompts a banker can ask customers about their business.
BMO Harris is also working with a vendor to improve its digital cash-flow management capabilities for small-business customers. It will white-label an invoicing feature, accounts-receivable and accounts-payable management, and
“Customers really want money management tools integrated with the online experience,” Kristufek said.
Kristufek says it made sense to partner with a fintech for the business-management tools, but that BMO built the all-in-one digital application in-house because her team couldn’t locate a vendor at the time who offered what they wanted.
“Fintechs are valuable, especially when they have a niche we can partner with,” she said. “They’re pushing us to think more like technology companies, to be more agile and to put the customer experience at the top of what we do.”
