Transcription:
Penny Crosman (
Welcome to the American Baker Podcast. I'm Penny Crosman. According to the JD Power 2022 U.S. Small Business Banking Satisfaction study released in October, half of small businesses nationwide are now classified as financially unhealthy. This means they have difficulty paying bills on time, inadequate cash reserves, or insufficient insurance. What is the path forward for these companies and how can banks and fintechs help? We're here today with Eytan Bensoussan, founder and CEO of North one, a neobank for small businesses that was founded in 2016 and is based in New York. Welcome, Eytan.
Eytan Bensoussan (
Thanks, Penny.
Penny Crosman (
Thanks for coming. So this JD Power survey that I mentioned found that 25% of small businesses are cash or capital constrained and 25% are financially vulnerable. And some of the biggest factors here are inflation. 60% cited inflation, 44% cited supply chain disruptions, and 36% cited talent, retention and acquisition. So given all that, how worried are you about small businesses' financial health, and what are you seeing among your clients?
Eytan Bensoussan (
It's funny, I'm surprised that the statistics aren't even worse. If we put ourselves in the shoes of a small business owner anywhere in the country, the rollercoaster that they have been on the last, let's say four years, is just astounding and it has real implications. The way that Covid hit, shut things down, opened up, sometimes yes, sometimes no. Closed again. The SBA program started and stopped and started and stopped, and then we had this massive supply chain crisis. So these are not billion-dollar businesses that are built with a whole lot of financial resilience. There's a kind of pretty standard operating model, and if you operate and execute well in normal times you should be able to be okay. But with all the change it puts a terrible strain. And a lot of these small businesses are going into hero mode trying to just, it's crushing sometimes.
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And one of the reasons around that is a lot of businesses need to look at some recent history to be able to predict the future, but the history of the last three, four years is completely out of whack. So it's extremely difficult to forecast demand. It's extremely difficult to think about pricing strategies when inflation is going across the board. And money supply was different a year and a half ago than it is today. I mean, all these things are adding up to a very difficult chasm that small businesses have to cross. And every one of the problems you listed just compounds the degree of complexity that they face. And so at the end of the day, at least when we talk to our customers, there's this amazing built-in resilience that they have saying, look, what do I know is true? That we can build our business on. And I can't think about too far out what hypothetical everything's changing so often but what that means is that they're operating withh much smaller margins of error and that creates individual risk. But on the broader economy, a couple more massive shocks, and some of them are going to break. And that's really disheartening because of just the amount that they've been able to survive over the last few years.
Penny Crosman (
So as a neobank, just from a financial point of view, how do you cope with that, recognizing that a lot of your customers are struggling?
Eytan Bensoussan (
We try to attack this in a few different ways. First, at the very basis of it, we work really hard to make sure that their banking experience, the very interactions they have with our platform, provides them with clarity, insight into the health of their business. Whenever we can that already, we try to say that that's going to give them a certain level of value, they can dodge a few bullets in that way. And what our customers, they, they've told us that really helps. I think about 88% of them have told us that their financial health has improved since they started using North one. And that that's this base layer of value. That is the promise that we say. It's not just another bank account, another banking platform. It's one that is really trying to help you understand what is this balance that you have and how do you actually think about what is owed, what is actually yours, and how is money moving around?
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The second one is that we take a real active stance in education. We have a local education series. We just had an event in Atlanta in a few weeks ago where we talked to Atlanta based business owners about what are the tools and the things that you need for your first year in business and how do we help them build on the knowledge that is out there? The difficult thing about being a small business owner is that there are infinite sources of knowledge and there's only a couple of places that you trust. And so when we have a certain place of trust in their minds, we take that pretty seriously and we try to provide them with what we see as some of the best possible strategies, tools, and thoughts out there on how to better manage their business. And I'd say just the last piece of that is that our customer support team goes more than simply, where is this button or where is this air?
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They're often, often very, very good at looking at the person behind the business and trying to better understand their context as we solve their problems. We get a lot of questions from these business owners that are outside of the scope of banking. What's a great accounting software I can use? Or Have you guys seen any tools like this? And so we try to send them really authoritative websites that are out there, not ours, <laugh> good sources that give you a nice listing of what's out there in the universe to better equip them. And so those are three ways that we really try to empower them.
Penny Crosman (
So you have a lot of people kind of working the phones so that when your customers call in, you can give them human advice.
Eytan Bensoussan (
I mean, look, a lot of it is simply problem solving, just basic problem solving. But many of the small business owners that we serve, one of the biggest hesitations they had of using a different form of banking a neobank was, well, what if I have to speak to someone? It was such a big concern in their decision making journey that it became a no-brainer that we would have phone support. And so we have a group of incredible customer support agents who are there, and they're there to talk and they're thoughtful and they're empowered with as much information as they have, and they're very human about it. And that actually creates one of the bridges to these small businesses to say, this whole FinTech wave that you're watching go by and you felt could not, you can really be a part of, well, here's one of the ways where you don't have to give up, you know, have to go into an emotionally uncomfortable state to get a better business banking experience. We're trying to reduce the degree of anxiety it takes to take that kind of a step. And that's been one where I always say that the greatest marketing opportunity we have is every time we get to speak to someone on the phone, we get to know the person, we get to know their business, and they get to know us. So it's always a win-win.
Penny Crosman (
Well, that was another thing in this JD Power survey that they found was that the biggest factors influencing how satisfied small business banking customers were trust in people. So that seems to be pre, I was going to ask you, how can an app take the place of human guidance? But it sounds like your service reps are trying to provide that human help.
Eytan Bensoussan (
It's not coming in the form of financial advice in any way. It's coming in the form of just listening to their questions and thinking through problems with them. We are really trying to, if they feel like they're blocked, just asking a couple of discovery based questions and then all of a sudden they're like, okay, this is actually what I'm looking for, thanks so much. And they get back to their day. And even just having a friendly voice say, I can't find this transaction somewhere in the app or on the website, how do I do this? And just being able to have someone walk you through that is sometimes just much easier than reading through an F faq. But there's a place for both some of our customers, if you'd ask them, I don't wanna talk to anybody, <laugh>, so happy to have in-app chat and to have a robust F faq. And that's okay too.
Penny Crosman (
And just out of curiosity, do the people working the phones also handle the in-app chat or is that a different set of people?
Eytan Bensoussan (
No, it's the same. A lot of the people, the part of the reason is these are the same relationship. It's the same person who is accessing us to a different channel. So we want to make sure that the experience is as consistent as possible and the information as complete as possible, no matter how you are engaging us. And I think one of the pain points that has, so that I've had and so many of these business owners have had is that you speak to your classic bank twice and then you have to give your whole life story again every single time. But in our view, we're able to build those relationships, they can be additive. So every time you speak, that's assumed, okay, now we know this, we know that you've had this problem, let's get to step two. And that over time, that really resonates with these business owners because they're realizing that they're saving so much time by having a depth of a relationship history with the company and the people that helped them.
Penny Crosman (
All right. So let me ask you about the app itself a little bit. What does the NorthOne app provide for small businesses today?
Eytan Bensoussan (
So the NorthOne, it's an app. We have a web client, so you can use the platform however you want, but it starts with an F D I C insured business checking account. We're partnered with The Bancorp. And so they're deep partners of ours that provide the regulated financial products and services that we're able to offer the customers. So they get that account and then they're able to move money in the classic ways I'd call them. So they get a debit card, plastic and virtual wires, ACH, and they get mobile check deposits. But then there are different forms of money movement that they get, for example, cash deposits. So it's very easy in neobank to say, look, if I just assume I'll serve the businesses who only move money online, it makes your life a lot simpler as a neobank. But then it immediately cuts out huge portions of a small business community that still deal in cash.
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It's, it's just a reality for them. We're not at that place where we're fully cashless yet. So our small business customers can find a Walmart and Office Mac for seven 11, a few other branch change like that, and they can go deposit cash at the cashier. And this allows us to recreate the branch value proposition for cash movement, but in a way where it's more elegant this way. And I love the teams and those other companies who are figuring out the best places to put their locations. That really helps us. And the other piece of it is that we're getting them in some ways what they would call what our customers would call more exotic or faster forms of payment stained a ACH remote check printing and mailing where they can put all the information and get sent on their behalf. So these are things which have been around, but for many of these small businesses have been inaccessible because their banks just didn't offer this stuff.
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And now we get it to them and it brings to life a whole new way of managing their business that they didn't think possible, I think. And that's what I would call the financial layer. And then on top of that, there's a software layer to the business. We're not just giving them ways to move money and ways to store money we're actually giving them ways to better manage their business. And so we have a number of features, and I'll just give you one as an example, but there's kind of a family of these that go to help them better manage the very health of their business. So we have this a system called envelopes where you have your omnibus checking account and then you're able to sequester portions of your money into envelopes, but in a programmatic way. So 10% of all my revenues need to go into my tax envelope so that you're kind of moving that money aside and not spending money that, oh, you're going to have to send to the government at some point. There are ways that they can start piercing through what is typically thought of as just giant amorphous fund of a money that your bank account into actual purpose-driven portions to it. And that level of clarity and rigor in your thinking when you actually manage these envelopes really reduces your operational risk that you might spend money that you didn't have or not save or something that you need to stay for. So that's just an example, but kind of a journey goes on and on.
Penny Crosman (
That's interesting, that kind of budgeting is in a lot of consumer apps. I don't heard about it as much in small business apps. So I think you guys had a round of funding from some venture capital firms in October, and I think you also talked at that time about building out the software layer that you have. Can you tell us a little bit about the kinds of either new elements or improvements you plan to make?
Eytan Bensoussan (
Of course. Yeah, so I think it just starts with what our North Stars, what we're trying to ultimately do is build a finance department inside of every small business in America. And so many of them have a portion of a finance department. Many of them are doing it implicitly without realizing it. But what we're trying to bring is the rigor and the robustness of a proper at scale finance department served up to them through their bank, their bank account. And that's a relationship that many of 'em never thought possible. A lot of them had resigned the bank account to being, it's like a utility. I plug into it, I don't care where I get my electricity program, as long as I get it, I have a bank account and it does what it needs to do. And when we start saying, well, what if that bank account and that bank platform itself was the beginning of what is a finance department for your company where you're able to do things like controllership or MANA working, your working capital and capital management, it really expands their imagination around, I didn't think that was possible.
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And so the next layer for us is adding onto this journey. We speak to our customers pretty often, and one of the more meaningful pain points that they have once they have solid banking in place is the payment flows. For example, I move a lot of money, some people need to be notified that I'm doing this. I wanna make sure there's other proper audit trails. I wanna make sure that I have approval flows. They have layers of complexity that is now being dealt with on Post-it notes, excels emails, screenshots. And so we listen to them and say, well, if we can actually bring this natively into the experience, we can provide them a whole lot of value and a lot of less risk. Every time you get a human involved, you create the opportunity for fraud, for error. So if we can remove post-it notes in their lives, remove floating screenshots there's a lot of value we can bring them. And that's what I call the part of the software layer, just trying to think about these manual processes that are happening behind the scenes. How can we actually start automating them and making them feel seamless in the north one experience itself?
Penny Crosman (
It's interesting that you're doing that. I mean, it makes sense, but when I think of small businesses, I feel like there's so much variety. You have a florist, you have a contractor, you have a handyman, you have a coffee shop. I mean, there's almost infinite types of small businesses. Do they have enough in common that you can build these tools that will be universally helpful to, well, no matter how different unique their businesses are?
Eytan Bensoussan (
Well, I think that's so special about the bank account that in every small business in America there's a bank account. And right now they are so cookie cutter, it's almost surprising how little differentiation there is. And so part of what we are we do is we empower a lot of these small businesses to connect their bank accounts to tools or other apps or other services that they're using in their finance departments so that the data can speak to each other. And as soon as you unlock the bank accounts experience to other adjacent tools and services be by definition, it starts becoming more custom for the kind of business that they have. And that's actually the really exciting piece that it's able to almost kind of a do-it-yourself journey. They start putting into place those integrations those even the way that they name their envelopes that are unique for their business and allow it to feel like much more customizable. And I think that's the lowest hanging fruit. There's so much more that we can go, there's just so many more ways that we can customize the experience and we're just getting started on that.
Penny Crosman (
And overall, what do you think is the advantage that a challenger bank North one has over more traditional banks that serve small businesses and maybe they have an app and maybe they don't, but they have small business bankers and branches and things like that. What can you do that the traditional industry or isn't doing?
Eytan Bensoussan (
Right. I mean, I think the first basic assumption is that there's probably something for everybody. There are a lot of businesses who deeply want that large bank experience and they sell hundreds of other financial products. And sometimes it's a real advantage. But there are other businesses, the kind of businesses that have come to us, which kind of have a couple of basic things in common. The first one they said is, how do I like this? Doesn't have to be so complicated, so hard, and so time consuming. So there's this kind of first question that pops in their mind saying, is there a better way? And so we start answering that question. But the next piece, you know, ask a lot of our customers, they want a person to speak to, but do they want someone who's calling them to say, are you happy with your experience?
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No, they want to get off the phone as soon as they're done, they want to get back to work. They hate being pulled into branches. They hate being put on hold. And so part of what we're able to do is to say, well, for those small businesses who say, get as far out of my face as possible, but only when I need you do you need to be there, we're able to serve that very elegantly. And I think the last piece is it's kind of the software layer that is around the bank account. The idea that a lot of banks are doing a great job at keeping money safe and helping them move money, but what we're doing is expanding the definition of what that relationship can do. And so the idea of building real valuable software around the bank account that can go deep into the finance department of the company and kind of starts setting up tools and processes for these business owners, you're getting so much more in the package than what you thought was on, you know, were bargaining for.
(
And that's the best kind of gift to give these small businesses. And I don't think that that's something that a lot of classic banks have seen as their mandate. I think a lot of them, and rightfully so historically, they've really been very good at keeping money safe and making sure you can move it when you need to and occasionally lending it to you. But the idea of having a software side to the experience where you're actually going far beyond the classic banking toolkit and going really into financial management for a lot of these banks, it's just been off the radar and it wouldn't be on the radar for some time. And I think we start with the assumption that those two things should be just natively offered together.
Penny Crosman (
So giving them time and ease in their financial world, financial work,
Eytan Bensoussan (
And look, I think Penny, it's just thinking what's all this? You think of your bank account, right? Well, what's all this transaction data for it? It's not the means to an end, not the end in and of itself. The end is not just to have rows of data, but each transaction tells a story, okay, you bought this. Was this something that was within budget when you paid this invoice? Did you pay too much, too little, too early, too late? Every one of these starts becoming chapters of a story of the health of a small business over the course of a month or a quarter. And that's what those small businesses care about. They care about the kind of synthesis of all these bank transactions put together saying, well, is my business solvent and am I doing better than I thought I would on track? That's really where we started saying, that's the problem to solve. And then we reversed engineered if those are the real problems that they're facing. Our assumption and our thesis was that the bank account is the best place to start solving that because it is the single place where all those transactions exist. It's the source of truth. And from then you can help them build that story of what those thousand or 2000 transactions say at the end of a month.
Penny Crosman (
All right. So last question. What do you expect to see in 2023, both in the financial health of small businesses that we were talking about before and for NorthOne itself, anything you can tell us about what you expect in the coming year?
Eytan Bensoussan (
Well, it could certainly synthesize, speak to our customers fairly often. And so there's a lot of themes that are coming around. I think right now a lot of our customers are in a state of anxiety, so they're seeing things in the news, they're seeing prices start to creep up and they're kind of waiting for the wave to hit. I think there's a lot of, I know things are supposed to get bad I can feel it a little bit, but it's not Dr. Dramatic just yet. And I think the most recent comparison a lot of them have in memory is COVID, where all of a sudden, in a matter of days, everything just cratered. So you're almost seeing <laugh> for a lot of them. It's like, until I feel that degree of free fall, then I feel like I'm okay. So there's a lot of anxiety. And so it's what a lot of them are going through right now is just very quickly trying to educate themselves, trying to look for any sort of resource on how to better plan for the storm that's coming, try to figure out tools and resources and even get tighter with their customers to make sure that they can have relationships that are going to weather whatever's coming their way.
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And so in 2023, I think we'll see more of that until we get some to some sort of meaningful point in the what seems to be the oncoming recession where it really becomes bend down the hatches customers are turning businesses starting to drop in a meaningful way, and then it's going to be probably more of a fight or flight mode. We're going to start seeing some small business closure, some small business pivots that I don't think that is being forced upon them right now.
Penny Crosman (
That sounds right. And hopefully that won't get as bad as some people think it will. Well, Eyton Bensoussan, thank you so much for joining us today. Thank you all for listening to the American Banker Podcast. I produced this episode with audio production by Kevin Parise. Special thanks this week to Eytan Bensoussan at NorthOne. Rate us, review us and subscribe to our content at www.americanbanker.com/subscribe. For American Banker, I'm Penny Crosman, and thanks for listening.