It's perhaps the most important concept in business - getting paid. For banks that have stumbled for years at building technology that helps build positive relationships with small business clients, enabling that simple process has become the ultimate ice breaker.
"If you talk to any small business customer in this day and age, it's very important that they are able to get their deposits in, and that they can pay bills online and get their receivables paid online," says Mary Ann Hebel, senior vice president and CFO of Business Bank of Texas, an Austin-based institution that serves primarily small businesses in the surrounding region.
The bank, which has expanded its digital payments processing capabilities and is plotting a foray into mobile banking, is among a growing number of financial institutions, particularly in the community bank and credit union sectors, that are plying payments innovation as a way to reach small business.
In just the past few weeks, Community Choice Credit Union, which operates near Detroit, has also adopted online banking and bill payment to reach small businesses, and in the process has lured business bankers away from local banks. Phoenix-based Desert Federal Credit Union is partnering with processing firm TransFirst to supply a portal that lets members download payments processing and other small businesses services as part of an effort to lure more small business members - only 8,500 of its 300,000 members are businesses. And Travis Credit Union, a 177,000-member Vacaville, Ca.-based credit union, has licensed Fiserv products for electronic billing and payment, among other tasks. Members can schedule payments and monitor finances via alerts; receive e-bills from more than 400 suppliers, such as utilities, insurers, mobile providers and credit card companies; and use branch and teller source capture to make deposits without courier costs.
"We've also tried to empower small businesses to use electronic services, such as ACH," says Dan Munro, svp and CIO at Community Choice, which has also introduced a paperless accounts payable product for small businesses. "Our business members were actually trying to use our consumer [payments] products, and we've been able to convert a lot of them over."
LURING THE LUDDITES
Products such as invoicing, mobile payments and remote deposit capture - which allows payments to be deposited quickly - are all saleable to a banking segment that's not always tech savvy, but appreciates quick execution of financial transactions.
"Mobile remote deposit capture is where it started, but I think products like Square, goPayment and PayPal are enabling businesses to use cards or accept cards as a form of fast payment," says Andy Schmidt, a research director at Towergroup.
Business Bank of Texas relies heavily on web-delivered services and Jack Henry's iPay to execute transactions, and will lean on that payments expertise as it moves into mobile banking.
iPay Biz 2.0 includes accounts payable and receivable through online banking, as well as electronic invoicing and ACH compatibility for automatic debits. The bank deployed the product a couple of months ago, and has found it to be a useful sales tool for businesses that may not be inherently tech savvy.
"A lot of businesses still use manual processing. When our sales team goes out to visit businesses, and they describe the benefits of automated payments processing, I don't find many that are resistant," says Hebel, adding that ability of iPay to integrate with most accounting systems is also an enticement. "They can not only connect to Quicken or QuickBooks, they have faster product overall."
She also says that as the bank develops its mobile app, it's doing so with an eye to how mobile handsets can be used to process payments through near-field communication and through devices such as Square's. "I would think that the most useful part of mobile would be the ability to take payments and have those payments credited in the business' bank account," Hebel says.
BIGGER MARKET, BIGGER FEES
Tech providers, who also note an increase in banks looking for payments solutions for small businesses, say the overall growth of mobile technology as a consumer retail tool has helped bridge the tech knowledge gap among small businesses. For small business owners, the concept of reducing use of paper checks and increasing use of mobile and digital payments and online treasury management is more digestible than it was a couple of years ago.
"I don't think the adoption of mobile commerce among small businesses is a whole lot different than the overall mobile tech market. It's awareness. People are starting to recognize that electronic payments and invoicing are more readily available than in the past, and they trust the technology more," says Greg Adelson, group president of iPay, who says the firm noted a 40 percent increase in small business electronic bill pay volume between 2010 and 2011.
Adelson also says banks are doing a better job of marketing digital payments to small businesses and drawing a connection between the benefits of consumer bill payment and business payments, even if the tech solution is different. "The business owners are consumers paying their bills, they are more used to seeing how this kind of products works. And if it works for their household, it should also work for their business."
Perhaps business payments work even better than consumer payments, at least for the banks, providing an extra impetus to make these payments easier via digital delivery and processing.
Rahul Gupta, group president of digital payments solution for Fiserv, which offers Popmoney among its small business payments solutions, says the average debit transaction for a small business is about $80, versus $40 for a consumer debit card. "So you get higher interchange fees," says Gupta, noting smaller financial institutions are not subject to the Durban Amendment to the Dodd Frank law that places tighter restrictions on interchange fees for larger banks.
Gupta says that opportunity is becoming apparent to Fiserv's clients at an increasing rate, and the use of small business payment tech is expanding as a result. "Debit cards for small businesses are growing at a 6 to 10 percent rate," says Gupta. "Many small businesses are still on personal debit cards, we're seeing community banks moving them into small business debit cards, because the benefits are pretty obvious."
Bottomline: Banks are finally putting together the right mix of payments and banking technology to satisfy small business clients.
