What It Means To Serve Small Businesses, Now

Transcription:

Nick Miller (00:09):

Hello, hello, hello. Welcome back. I'm Nick Miller with Clarity and I'm happy to introduce Ginger Siegel to you. Ginger is the North American Small Business Lead at MasterCard, responsible for MasterCard's small business strategy and the development of products and services and thought leadership that MasterCard provides to its diversified North American client base, which includes banks, credit unions, fintech's, processors and acquirers. Ginger spoke several years ago with this conference and she shared a vision for strategy and evolution of banks and their platforms to serve small businesses. Small businesses, as you know are challenged with time and resources and she discussed the concept of bringing together the many diverse needs that small businesses have and the subsequently the solutions that they need to help the small businesses thrive, as well as the advice and guidance that they need to use those tools effectively. Since their last appearance here, ginger has led MasterCard's efforts to penetrate more deeply into business communities, particularly women owned businesses and minority owned businesses, and listen closely to those business owners and develop an ecosystem of support that provides knowledge, education, and tools that help them thrive. And through that, she's developed a point of view about what it takes now to work with small businesses and to help them grow fully and holistically. Please welcome Ginger Siegel.

Ginger Siegel (01:36):

Thank you. Good morning, good afternoon. Hope everyone is doing well. So as I was reflecting on what to talk about and talking to my friend Nick, one of the things that I've become very passionate about is how we as the ecosystem can serve small businesses, but make it about the small business, not about us. And so that's really what I want to talk about today. MasterCard has taken a very strong position that we need to do very deep research to understand what small businesses need, and only then can we build products and services for all of you. So that's what we're going to really discuss today. So I call this a bit of my provocative slide, and here's the bottom line. I mean, how many of you are feeling the energy but also the flux that's going on in small businesses, a segment, and we feel it too.

(02:41):

We get to see it. I have a really cool job because I get to talk to every one of you. I get to talk to credit unions, the largest of banks, the smallest of banks. And what I'm hearing from them is they want help not just on product but on strategy. How to create an environment where small businesses feel right, feel good about being a part of it. So I put this slide together. I want to talk about some of the positives of small business and the work that we all do. Number one is mixed households. People forget small business is not just about small business. Every small business is a consumer. I think you heard Dell talk a little bit about that. One of my points in my career, I created a healthcare division for Citigroup and we drove in billions of dollars in assets under management from doctors that we worked with.

(03:36):

So huge opportunity there. The average small business is four to six times more profitable to a financial institution. And this is why number two, I think very often when we develop products, we say, okay, this is for small business, this is for business banking, this is for middle market. What small business offers us is an opportunity for these businesses to grow into and not out of us. So we'll talk a little bit about that community. How many of you during COVID walked down your main streets in your towns and they were dead because small businesses were shut down? We know that small businesses make communities, and we saw a huge issue when 45% of small businesses went out of business at Covid and the empty storefront. So small businesses build communities and vice versa. The other thing is, I'm not going to go too deep into this because I'll get my blood pressure up.

(04:37):

There's a bit of proposed legislation out there, and we believe, and what we were talking to our banks and credit unions et cetera about is that small business can provide an economic hedge to some of the things going on. For those of you that issue debit, I'm sure you have some sleepless nights and we believe there's an opportunity for small business to really help some of those financial issues. Pretty simple. They spend two times more. They have two times as many transactions. Their transaction size is bigger, their deposit accounts, anyone here need to grow deposits. I think we talked about that. And we know that their deposits are much bigger than consumer, but if you bring them both together, it's a huge relationship. So on the other side, so I was meeting with a very senior executive from one of the largest regional banks, and he said, I want you to be a bit provocative.

(05:38):

I don't want you to just tell me why it's good. What are some of the concerns of having a small business organization? So number one, my biggest concern is that will our ecosystem be able to focus on the small business needs versus us? Can it be, tell me about your business and your dreams versus, Hey, I got a great checking account to sell you. So I think for me, that's one of the biggest questions. Two, underwriting for those of you, we have fintech's here. You heard from Bluevine and a number of fintech's, banks, credit unions definitely need to start looking at alternative credit data to challenge your underwriting parameters because there's a lot of competition out there that are doing that. And then another really big question mark is the need for bankers to be trained on needs and solutions versus just product. And I know we talk a lot about that, but I actually just came back from a very large large regional bank sales conference where I taught bankers how to profile.

(06:45):

So there's a lot of need to make sure that bankers can go into a conversation and have the right conversation versus just a product push credit issuance and spend growth we know is slowing a bit in the short term because of inflation. Risk management is always going to be key. And we know that a lot of banks have tightened up. And then the other final question, and Nick alluded to this, is how do we help the underserved? And I don't just mean underserved communities that have bad credit. It might be a underserved business that's new that has thin files. We're developing a card for starter businesses as an example. So we have to rally together. MasterCard is hugely focused on black female, L-G-B-T-Q, Hispanic, Asian American and veterans. We think that's a very important community. And how many of you want to guess what is the fastest growing segment of small business today? Anyone want to take a guess?

(07:48):

I'll tell you, it's female Hispanic businesses. That is the fastest growing segment in small businesses today. So one of the great things that we have is we've got a phenomenal organization at MasterCard called the MasterCard Economics Institute, and our chief economist, Michelle Meyer and I have partnered to actually bring to the forefront a small business specific economics report. So I'm going to share with you some of that data, which is super cool. But first of all, I'm going to blow your mind because my mind was blown. But take a look at this. And this isn't credit applications. This is new small businesses forming. If you were wondering why you should be in small business or if this is why between 19 and 20, there were 870,000 new business applications for formation 2021, there was 5.4 million. 2022, there was another 5 million. And this year through July 3.12, which means we're on a run rate of omas 6 million new small businesses forming today.

(08:59):

So if you're not necessarily in the c-suite or you are in the c-suite, you should be talking about this as to the why you need to serve this community. Super important. Another really interesting thing is that we have found that consumers are now spending more at small business than larger businesses. So take a look at this chart. You can see we have a lot of charts, but this one is, it's not as confusing, but if you take a look at where consumers are shopping in terms of large online and small and medium businesses, you can start to see the power that small businesses have and what happens if consumers are spending more on small business, they have more money to keep with you in the form of deposits and they also need more credit. So I just wanted to give you just a sense of the growth that we're seeing including in 23.

(09:53):

So we think this is an enormous opportunity for all of you to leverage that. We also broke it down by, okay, there's a lot of small businesses out there. What are some of the segments that consumers are spending at now? I know we had a session today on segmentation. We are doing a ton of segmentation work in a lot of different areas, and I'll show you in a minute, one of which is industry verticals. But take a look. You can see sporting toy stores, interior furnishings, clothing, look at restaurants and bars In the past, restaurants have been an area, I worked in banks a lot of my career where a lot of people stayed away. But actually restaurants are doing super well right now, especially coming out of covid. And then you can see recreation. But I thought it would be interesting for all of you to get a sense if you're thinking about segmentation and if your bankers are asking people, tell me what your business is.

(10:52):

This is I think, a really important chart to help aid that. And then I know I showed you before the number of US business applications, you can just see the huge trajectory, but I thought you would be interested in seeing some of the top industries that we're forming professional services, doctors, lawyers, CPAs, marketing services. I'm particularly, I love working with doctors because I started that a healthcare group at Citi when I was there, as I mentioned, but huge opportunity for cross-sell there, wholesalers, arts, entertainment and recreation and manufacturing. Those are kind of the top growth areas that we're seeing in terms of new businesses forming. I want to take a step back, and some of you, this might be repetitive, but I'm a data geek and there's about 33.2 million small businesses in the US today. Now, imagine this at covid when Covid hit a third of those, or 10 million of them did not have a digital online presence.

(11:56):

And so the work that we do as an ecosystem to help them get online, to help provide them with the education and tools, it's critical. And about 75 or 80% of them say that they're doing this today. They also employ almost 50% of the workforce, and they're responsible for 64% of all new jobs created. Now, wouldn't it be cool if bankers had this information? Wouldn't it be cool if bankers could actually have a conversation with a small business to not just find out about their business, but just to provide them data about their industries? 70% of small businesses are actually willing to invest in advancing their payment solutions. So how many of you keep hearing the buzzwords access to capital? Anybody? And how many of you associate access to capital with borrowing? Okay, we look at it a little differently. We believe that small businesses need to get their own money in quicker.

(13:01):

And this is a huge focus of ours, which is how do we create an environment where small businesses can get their own money in faster, not so that they don't have to borrow, but maybe they don't have to borrow as much and they're willing and able to invest in these solutions. Scary number here, 41% of all purchases are made using checks. The amount of spend that small businesses make in the United States a year is $6 trillion. For those of you that issue cards today, you don't even have anywhere near all of it. So there's huge opportunity to move, check and cash into card. And so that's something else that we focus on in terms of spend. They spend two and a half times more than consumers do. And then the other thing that we look at a lot is that 76% of them are using personal cards for business purposes.

(13:53):

For us, it's not about cannibalizing, but it is about making sure that your bankers, the people that serve small businesses within your organizations are having the conversation. To me, it's financial malpractice to just let a small business not separate out their business and personal expenses, their business and personal spending, because when they present themselves for credit and they have a jumbled up, mixed up financial situation, it's extremely difficult for them. These are just some stats that I really think it's important to ground in. Now, we talked a lot about segmentation. This is how we look at segmentation. We look at it a couple different ways. Number one, we look at revenue. So we've kind of modified this a little bit because there's a wonderful space, the upper end of small business, lower end of middle market that we're very focused on, but we define small business, zero to 500,000.

(14:58):

We define as micro 500,000 to 20 million, we define as small, and then over 20 million gets into the medium. Now, we hear a lot from banks and credit unions and fintech's that they're going up to 10. So guess what? Then we talk about going up to 10. We have to be agile because we of course, as you all know, MasterCard is a B two B2B company. Our job is to put the wind at your back so you can serve your small business customers. The second thing is the stage. They are in the lifecycle. So a business that's establishing itself is going to have very different needs than a business that's maturing. And so ask yourself when your banker is sitting down, maybe they ask the years in business, but imagine how interesting it would be to say to a small business, where do you see yourself?

(15:49):

And I'm going to show you why that's super important. The third thing is the vertical trade. Plumbers, electricians, contractors, professional services. We talked a little bit about retail and manufacturing. So we think there's a whole opportunity with the creator economy. We've done a lot of research on the creator economy, gig workers, and we've also done specific industry research on doctors, lawyers, accountants, restaurants. And the reason we do that is because we know the needs are different. And so what we heard from them is, Hey, we want to be recognized for our profession. And so we think there's a lot of opportunity there. And then lastly, if you're not focused on the underserved segments, 43% of small businesses are women owned. 19% overall are minority owned, and that number is growing exponentially. And 14% are Hispanic owned. And as I mentioned, female Hispanic businesses are the fastest growing.

(16:49):

So as you're thinking about your strategy, this is a really critical area and they are looking for help and support and they love and they love the creation of loyalty with an organization. I want to talk a little bit about a couple of the things that I just mentioned. This is about revenue. So when you think about where a small business is in their journey, they're going to grow hopefully from small business to lower middle market to mid-market and above. The question is how can you all be a provider that businesses will grow into and not out of? And what I like about this approach is that we start with the needs within those buckets. So what are the attributes and key changes that businesses are looking for? And then we look at the needs that come out of those changes, and then we look at the solutions.

(17:49):

So we don't ever present solutions first. For me, you can't know what someone wants until you ask them. And we don't believe if you build it, they will come. So this is kind of talking about what I mentioned, which is the growth of a business and how do you capture that growth throughout so that they don't have to change banks. The second thing I mentioned is lifecycle. Again, the same thing. Every stage of a lifecycle has different needs. Again, the point, if I leave you with anything today, it's that we need to look at needs first. Small businesses want to be addressed about what they need versus what we need. So again, you've got the business needs. So let's say in the establishment phase, they're going to need access to capital, cashflow tools, professional partners. Imagine if you guys took this chart and you built in your solutions and then put that in front of a banker and said, this is how you want to have the conversation.

(18:52):

So I'm really bullish on providing bankers with tools that will facilitate a more profiling type conversation. And then of course, transition. You talk about wealth management, guess what? Hopefully the small business is going to grow. They're going to amass personal wealth, and you have a huge opportunity into the wealth management business. Bringing together those businesses and creating what I call an internal velocity of referrals is critical. When I was at Citi, I used to get copies of every mortgage app, believe it or not, and I would see who checked off. It was a while ago before a lot of data, but don't get me started there. But my point is, is that it's really important for an organization to bring all those pieces together. So I want to, I guess, illustrate how important to me and our company needs are. So small businesses, despite what you would like to hear, they don't wake up in the morning thinking about their bank.

(19:57):

They don't wake up in the morning thinking about MasterCard. They wake up in the morning thinking about this. How does my business become more technology enabled? How can I be more operationally efficient? I don't have CMOs, CTOs, CFOs. How can I run my business better? I need help with cashflow management. Do you notice I don't have credit cards on here, don't have loans on here. What I do have is cashflow management and access to capital. They need help with new customer acquisition. They need help with time management, and they need help with safety and security. Now, here's my scare portion. I won't put a mask on, but I will hopefully scare you with this. 50% of all cyber attacks are happening on small businesses today. The average cost to a small business of a cyber attack is between 100 and $200,000. You all spend a lot of time and money underwriting loans, making sure that small business can pay you back.

(21:01):

Yet how many of you, and you don't have to raise your hand or not, but how many of you are actually understanding if they have protection? Because a great business that has great financials that does a million dollars a year in revenue, a 200,000 ransomware attack can wipe them out. So again, top three areas that we focus on and we build based on this, not based on what we want access to capital, digital enablement, and then safety and security. I think to me, this is how the ecosystem really should be thinking about things versus putting up their products on a board and saying, yay. And that's just my personal opinion. So I'm going to talk a little bit about a few of these. Cashflow management. I think some of you already know some of this, but 85% of small businesses told us that applying for credit is too slow in manual.

(21:58):

That's a surprise I'm sure to many 75% report that being unable to quickly access their funds impacts them. 64% of them have unpaid invoices more than 60 days past due. Imagine if Josephine the plumber came to your house today, she comes to your house, she fixes your sink, she goes back to her office. Maybe two weeks later, she sends you a paper bill and maybe two weeks later you pay her. Imagine if she could actually send you the bill while you're standing at the sink and all this stuff exists today with digital invoicing, and then you can pop her money right back. So again, we know that the average small business only has 27 days of cash on hand. I think it was someone said this, which is small businesses when they get turned down for a loan. It's not something bankers want to talk about, but it's certainly something that that's small business cares about.

(22:57):

But again, just a couple pieces on that. I talked a little bit about the importance of digital enablement. 70% of small businesses have added new digital capabilities. 36% have added actually new e-commerce. Remember I told you that 10 million of those small businesses did not have a digital online presence. That number is rapidly decreasing because after covid, they saw no storefront, no digital, I'm done. And 82% are actually changing how they send and receive payments. And 51% will invest more heavily in there online. So again, if you notice, and I'm doing this on purpose, I'm really not talking product. I'm actually having a conversation where I'm not talking product. And by the way, we have great products stuff if I say so myself. The other thing I mentioned is cyber. I'm not going to go through all of this because I mentioned it, but here's the important point. 83% of small businesses are not financially able to withstand a cyber attack. So again, if there's one more thing that I like you to think about and take away is what are you doing from an underwriting perspective to safe haven yourself against the potential of that small business going under because of a cyber attack? And this is happening more and more, but again, a lot of these small businesses don't even start thinking about cyber attack until they're attacked and it's often too late.

(24:27):

So when you bring all this together, why is small business important? And I think you guys all know that, but for me, if you truly are understanding and listening to what they need, if you're building your product and sales process focused on what they need, this is what you get. I call this the mixed household. I think someone mentioned it on a previous panel, but it's not just the small business You get potentially you get the family, you get the employees, you get the employees family, and you can really, if this is done right, create an ecosystem within your organization of very powerful sticky relationships. And we know today that the average small business does not have everything with one bank. In fact, only 31% have a business checking and a credit card with their primary bank. This is something we work a lot to do.

(25:21):

We do what's called propensity modeling, where we'll go in and look at how consumers are spending and to see if they're actually a business. So there's a lot of work that's going on in the space. And then the other thing is it's pretty simple. 100% of small businesses, our consumers. And when we do propensity modeling, I will tell you with one bank I found a low of 14%, and the highest number I've seen is 37% of their consumer portfolio were actually spending like businesses. So huge opportunity for low hanging fruit. And I guess this to me is probably one of my favorite things, which is how do you make this happen? If you think about it, small businesses do not change their accountant and attorney very much, but they do change their bank. We have to ask ourselves why. And I think the reason is is that accountants and attorneys become trusted advisors.

(26:21):

They position themselves as a place to go for resources of information, advice, and guidance. And I believe that we in this ecosystem can earn a right to be a part of this triangle of advisors with each person desiring to be a more trusted partner and to be a part of the business, not just a provider of products and services. So to me, and again, this is not something many of you don't know, but it is something that I have seen in my experience, which at MasterCard over the last seven years, I've been able to talk to a lot of different banks, et cetera. This does not always happen in practice. I do want to take a step back and I want to talk about the importance of focusing on the small business community as a whole. We have committed $250 million to support small businesses across financial technology, product and services.

(27:22):

We are very, very focused on closing the racial wealth and opportunity gap, which to us is very much around digital as well. We have committed to getting 50 million micro and small businesses into the digital economy, and I'm super excited. This last one, which we were not supposed to achieve for another year, we've actually just achieved it a couple months ago, which is connect 25 million women entrepreneurs. And what we try to do, because these people that we want to help are your customers, and that's really a big part. We believe that we can be the engine behind you to actually help empower you to serve these very, very important communities. And we do them with great ambassadors. For those of you from New York, people like CC Sathia, Jennifer Hudson. So we've been very lucky to get some really cool small business ambassadors that really care about this.

(28:18):

So I'm going to end on this slide, and yes, I know it looks like Candyland, who did not think that, but this is Christina. And I guess this is really to me what I want to leave you with. Christina is an actual restaurant owner. When Christina gets up in the morning, she is not thinking about any of us. She's thinking, how do I get my business to be more digital? How do I get capital goodness, how do I stay afloat? It has been a really tough couple years. How do I navigate danger? I'm starting to hear a little bit about fraud and cyber attacks, but how do I really navigate it? Who's going to help me? Who's going to give me knowledge on how to run my business? Where do I get educated? And then how do I save time? Now, as an example, I've put in the things that I know we do for our banks, et cetera, to help them help Christina.

(29:17):

But you might want to think about what are you doing to help Christina, and how are you organizing your business, your structure, your products, your services to make it about her versus yourselves, or I'll even say myself. And this has been a really strong conviction that I personally believe in, and it has helped us as a company. All of you have amazing reputations in your communities, wherever you are, whether you're digital, whether you have branches, and I think it's important that we work together to show up in a big way, not just for us, but for Christina. So with that, thank you so much for your time and attention, and I'll be around for a little bit. But it's been great speaking with you. Thank you.