When David Mitchell recently had his garage painted, he asked the tradesman how he wanted to be paid.
"He said, 'come to my truck'," Mitchell said. "He took out a clipboard to write out a paper invoice. And I said, 'forgive me, but I don't even use checks. They call me Digital Dave at the bank.'" Mitchell is chief digital officer and digital bank general manager at Liberty Bank in Middletown, Connecticut, which has $7 billion of assets.
He explained to the painter that paper invoices tend to get tossed in a pile; statistically, paper invoices typically don't get paid for 27 days.
"I said,' if you had your iPad in your truck right there, you could send me an electronic invoice right now while I'm standing here'," Mitchell said. "I could pay you with Apple Pay, Google Pay, however you want to be paid. And it would be in your account before you drive down my driveway."
Mitchell was referring to Owners Bank, a digital-only bank Liberty is launching Monday. Its intent is to give small businesses tools to help them run their businesses and get cash faster.
For instance, the house painter had receipts all over his truck from Home Depot, Sherwin Williams and such. He could take a picture of them and load them into his Owners Bank app, Mitchell said. He could also track his miles on the app. Owners Bank provides checking and several tools like this for managing expenses. It will roll out loans and credit cards in July.
"There's a huge gap in the market for a digital bank like that," he said. "And that was our vision."
Other banks have also been stepping up their small business offerings with the help of technology.
Zions Bank in Salt Lake City, which has $65 billion of assets, is ten years into a complete tech overhaul meant largely to better serve businesses. Leader Bank in Arlington, Massachusetts, which has $4 billion of assets, has been drawing former Silicon Valley Bank and First Republic clients by providing technology such as digital escrow.
Small business banking "is in some respects the last frontier for financial institutions," said Vincent Hui, managing director of Cornerstone Advisors. "Small businesses have usually been underserved in terms of service capabilities and digital experience. They are not exactly consumers and they are not typical commercial banking. Historically, many institutions try to force fit them into those categories. With neobanks being more established in the consumer space, the opportunity is right for forward-thinking institutions to attack this space before all the other me-toos."
But the offerings of fintechs and banks are often not specific enough to meet small businesses' needs, Hui said.
"Small business owners are very busy," he said. "They want to spend their time with customers versus the administrative stuff of running a business.
Building a digital bank for small businesses
Mitchell was hired in 2020 with the idea that he would build and run a digital bank.
In his prior job as president of Nymbus, Mitchell launched ten digital-only banks. Before that, he worked at Open Solutions, which developed the DNA core system Fiserv now offers; Fiserv bought Open Solutions in 2013.
When he arrived at Liberty, Mitchell decided that before he could launch a digital-only bank, his bank itself needed a tech makeover. He upgraded mobile banking and account opening, and updated internet banking with Alkami software, payments with Payrailz software, and digital customer service using Glia. He also put into place Autobooks accounting software and Savvymoney credit score software. The core system remains Fiserv DNA.
Hui agrees that the choices of Glia, Alkami, Payrailz, Savvy Money and Autobooks meet his definition of best of breed.
"You need the ecosystem of partners to deliver your value proposition of high tech and high touch while making it simpler for small business owners to run their businesses," he said. "Each piece is critical to that network for the whole premise to work – as they say, only as strong as the weakest link. The most important part is not best of breed now but will they stay best of breed—and their track record suggests they will."
Liberty Bank surveyed 3,000 small businesses over eight months.
The main takeaway was: "Big banks don't understand me, big banks don't want my business because I'm small," Mitchell said. "I have trouble with cash flow. I just want to do the job I got hired to do and not do banking. I've got to deal with invoicing, I've got to deal with payments, I've got to deal with collections and I can't get a loan unless I've got five years' worth of tax returns and I've got to fill out 80 pages with one of the big money center banks."
And all of the small businesses said they still want to be able to talk to somebody.
"That's why we implemented Glia for video banking," Mitchell said. "So they can call our call center, they can use secure email, but they can also just press a button in the chat and video chat with a business banker located here."
Liberty built a call center in Middletown for this purpose. So far, there are only three video bankers because there aren't any customers yet. Twenty other bankers have been cross-trained as Owners Bank scales up.
Some big banks have tried digital-only brands and later dropped them, for instance, Chase's Finn and Wells Fargo's Greenhouse. These ended up cannibalizing the traditional banks' customers. Smaller banks have had more success with the concept, as they are using a digital bank to reach outside of their local market.
Mitchell said some digital-only banks have done poorly because banks are not good at marketing, Mitchell said, whereas challenger bank fintechs like Chime are.
"Banks think like banks," he said. "I think if you launch a digital bank, you have to think like a marketing company. But why is Chime so good? Chime doesn't do much of anything different besides that they are great marketers. So I think marketing's the biggest key to a successful digital bank."
Hui noted that fintechs and banks all have the same basic products, like checking accounts and credit cards.
"It is how you package and deliver them that allows you to differentiate yourself," he said. "That's where the marketing comes in and helps define the value proposition or 'hook' that resonates with small businesses. Then the next step is delivering against the promise."
One of the challenges of serving small businesses, especially with an app, is that there are so many different kinds of small businesses out there with different needs.
To accommodate the many different things a small business might need, Mitchell and his team have been evaluating approximately 100 fintech apps over the last eight months. They plan to create a marketplace of apps through Owners Bank, including for payroll, insurance benefits, HR recruiting and project management.
Mitchell refers to Owners Bank as a "no BS bank." This motto was inspired by the tone of the small business customers who responded to Liberty Bank's survey.
"Literally, 84% of them hate their bank," he said. "And most of them are with the big money center banks. The way they don't know me, they don't treat me well, they don't meet my needs. I've been with them for 15 years, but then I go to try to get a $50,000 loan, it's like going to the dentist."
Other tech for small businesses
Small businesses are a key market for Leader Bank in Arlington, Massachusetts, which is hoping to serve some of the tech clients Silicon Valley Bank specialized in.
"They need high-touch service and have less of a need for a big physical branch network," said Jay Tuli, president of Leader Bank. "First Republic and Silicon Valley Bank did like an outstanding job with that."
To provide high-touch service without having a lot of branches, Leader Bank has specialized groups of bankers that focus on segments like technology and real estate. Each client gets a banker they can call for anything they need.
For the clients that are using branches less, technology becomes more important.
"They have to use the mobile app, the online app, the remote scanner," he said. "There's no choice. So you have to really up your game on the technology side to accommodate their needs."
Leader Bank has been upgrading its business banking technology for about five years, Tuli said.
For real estate clients, for instance, it offers digital escrow accounts using software from ZSuite Technologies.
"It makes opening sub-escrow accounts really simple," Tuli said. "You can open up thousands of them in a really efficient way for landlords where, if we had to do that manually, not only would we not be able to do it, we'd also probably make a lot of human error."
Zions Bank in Salt Lake City primarily focuses on business customers and it has also been updating its technology for this market.
"We're trying to get really close to them and understand what their needs are and be responsive to those needs digitally, because there's only so much I can do at a branch and build out for an experience," said Jake Heugly, senior vice president and corporate services division manager at the bank. "Do they want a free cup of coffee? What do they want when they walk into a branch? It's more important to make sure that we're focusing on the digital."
Zions has been modernizing its core banking system for the past ten years. It has migrated all its loan systems, and by the end of the year, it hopes to have finalized deposits.
The new software will let Zions post transactions in real-time rather than batch mode. It's hard to explain the benefits of this to customers, Heugly said.
"It's like trying to sell a home and telling everybody, you should see how well the plumbing works," he said. "The pipes in the walls, they're so good."
In the past three years, Zions has deployed new digital and mobile platforms for retail, small business and commercial customers. This includes digital account opening platforms for mortgages and for small business accounts. The bank is using digital signature software from DocuSign and Dragonfly online banking software for business customers.
Dragonfly (which was formerly ACI) and the bank have built out API capabilities such that Zions can pull customer data and display it in dashboards.
"We've placed things in the dashboard that a customer can decision a positive pay item more easily than having to click through multiple times," Heugly said.
However, human connections to business customers are still important.
"We want them to know their banker, their kids playing sports together," he said. "But they need to have an online experience that compliments the relationship they have with the banker. We're creating enhancements so they can interact with us via chat and all those types of things. But it's never going to replace the banker. The banker's absolutely necessary."
