Community Banks Roll Out Digital Tools for Small Businesses

Community banks have been slow to develop digital tools for small-business customers, but that's starting to change as on-the-go business owners are increasingly demanding more sophistication from their online and mobile banking applications.

With help from their vendors, small banks are enhancing their online and mobile banking offerings by adding features that allow business clients to better distribute invoices, more quickly approve wire transfers and manage other day-to-day tasks that previously may have required a visit to the branch.

Mercantile Bank in Grand Rapids, Mich., was one of the earliest smaller banks to deliver customized small business tools when it partnered with Bill.com in 2012 to enhance its business relationships. 

Community banks such as Mercantile need to innovate to keep business clients from defecting to larger banks that generally offer richer tools and, in a sense, to keep pace with nonbank startups like online lender OnDeck and payments processor Square. The success of the younger firms, which compete with slices of bank services, is proof that small-business owners are eager to tap technology to accomplish tasks.

"Small businesses aren't working from their desks anymore," says Deborah Bell, senior vice president and chief information officer at the $455 million-asset Ameriana Bank in New Castle, Ind. "Offering a mobile banking app keeps pace with their schedules."

Another reason why small banks are motivated to develop newer, hipper apps for business clients is the potential for fee income. Simply put, small business customers are generally more willing to pay fees for services than retail customers are.

Still, small banks have a lot of catching up to do.

Aite Group estimates that only 30% of banks with of assets of less than $10 billion offer mobile banking tools to their small-business customers, compared to 65% of banks with more than $10 billion in assets. These estimates include both consumer offerings rebranded as business ones and true business mobile platforms.

Tech vendors are eager to help small banks close the gap.

Digital Insight, now owned by NCR Corp., updated its online banking platform for business users in March while Malauzai Software of Austin, Texas, introduced a business mobile app in February.

"Community banks are putting a lot of pressure on their tech providers to enhance their small business [tools]," says Christine Barry, a research analyst at Aite Group. "Mobile capabilities are very hot right now for small business up to large corporate customers."

Ameriana Bank is one of the first Malauzai clients to use the vendor's new business mobile banking app. The enhanced app already lets business owners view all of their business-related accounts and Ameriana plans to strengthen it this summer by adding a feature that will allow for approvals of wire transfers and ACH transactions.

The $565 million-asset MutualOne Bank in Framingham, Mass., is another institution working to better meet small businesses' digital needs — without overloading them with features designed for larger commercial banking customers. The bank is one of the first to pilot Digital Insight's updated platform, which, among other things, allows an online banking user to delegate a task to someone else in the company, such as an accountant.

"We wanted a system in place where [customers] had more control," says Kimberly Sambuchi, electronic banking manager at MutalOne Bank.

Prior to the upgrade, MutualOne had a manual process that required physical paper work to set up so-called entitlements that let, say, a bookkeeper access the business owner's account in a read-only mode.

MutualOne Bank has 1,001 business accounts, and now counts more than 395 online banking customers who have at least one business account online with entitlements.

The greatest challenge - and one that's ongoing - is communicating the update to bank employees, says Sambuchi. That's why MutualOne Bank also appoints one person in every branch to debrief the brick-and-mortar team on new products and services.

Another challenge for small banks is deciding how far they need to go to keep pace with larger competitors.

For example, PNC Financial Services Group and Bank of the West offer customized features such as cash-flow projections and tailored mobile apps, while Capital One's Spark Pay lets owners accept payments on mobile devices. Such features are more sophisticated than what small banks are offering, but they may need to consider adding them at some point to meet the demands of their clients.

The new tools can serve as bait to help banks identify who their small business customers are in the first place. Small business customers often use consumer accounts, and they are unlikely to switch to business accounts - for which they will likely pay fees - unless they see real value. One key to making them switch is to keep it simple; small-business owners won't use business apps if they are littered with hard-to-understand jargon, industry experts say.

No matter the feature, ease-of-use will matter most, say analysts.

"Usability is always the biggest challenge," says Aite's Barry.