Chief Investment Officer
Commercial Loan Automation
spotlight on small business payments
Liat's article got a slew of responses. So many people identified with her words, either as marketers or as peers. Eli Kramer, my fellow director at Sun Bank, wrote in response to Liat's article: "The question is not retaining Liat's business; it's making money on her... I can retain her and all others like her by creating a virtual Starbucks living room --- but unless I can sell, to Gen Y, brown water (Starbucks coffee) at $3.00 per cup, I'm not sure how to earn on them... with the exception of transaction fees on debit and credit cards....not only are they broke and save -0-, thanks to modern medicine, they won't inherit our money until they are 70 years old.... ".
Pat Sze-Benash, Marketing Director for Webster Bank, wrote: "Thanks for sharing once again very insightful comments and especially your daughter's article about why she is so loyal to Wells. We are working on our value prop and the current version includes the word ally-- so when I read her comments about how Wells has proven they're in my corner I felt it absolutely reflected the intent of the word ally as it exists in our value prop. I've shared this with some others on our cross functional team. It also reinforced to me the importance of attracting some of the under 25 crowd (which we have little of) despite the fact that they are not profitable -- because they become fiercely loyal if they stay in footprint and have a positive experience with their first bank! "
Scott McBrair, Director of Retail for Webster, also wrote: "I love Liat's article! My son, Troy, is also in the process of moving from his dorm to an apartment and guess what: needs to order checks after banking electronically for the past 2 years. So I've gotten text messages (not a phone call) saying when am I going to get my checks, Dad? And on the rare occasion h's gone to the branch I periodically get the text message do you know what time your branches close? followed quickly by where is the nearest branch that has real hours?. He is nocturnal, but we in banking still often have bankers' hours. Yet, he loves us (or more appropriately said, loves the staff at our local hometown Webster branch)".
Article synopsis: The opportunity for selling payment services to micro and small business is HUGE!!!
Spotlight on Small Business Payments
You know I've been touting attention to bank payments services for the past two+ years, talking again and again about their potential, profit implication and retention impact.
Let's consider the following set of facts (this article has a lot of facts and a few conclusions):
On small business:
- There are between 24 and 31 million entities with 1-49 employees (Source: US Bureau of Census); 14.5 million of them earn between $100K-$5M
- The number of sole proprietorships and S corporations has grown 17.3% and 29.7% respectively between 2002 and 2007 (Source: Federal Reserve)
- Sole proprietorships account for 71% of the businesses and only 5% of the revenues; Corporations, on the other hand, account for only 19% of the businesses but 84% of the revenues
On Small business and payments:
- 93.1% of all small businesses use checks as a form of payments; 75.5% also pay bills online (Source: Aire Group small business survey, April 2006)
- 40% of small businesses receive 85%-10% of their payments in checks; another 25% receive 70-85% of their payments in checks
- 50%+ of small businesses receive less than 3 checks a day; $1-$5M firms receive about 6 checks a day, and larger firms receive 12+ checks a day (Source: Celent SMB Survey, June 2007)
- 35% of small businesses make 3+ deposits per week, and 75% of them say I takes less than 30 minutes per deposit trip
- Larger small businesses deposit more frequently, but "desk float" is still a serious issue for many
- Annual float value per customer can be as high as $100K for a $1-5M company and $160K for small businesses with revenues exceeding $5M (Source: Celent SMB Survey)
- Projected RDC adoption by small business reaches 18% by 2012, or within 6 years of product introduction (consistent with online banking experience); micro business adoption typically lags by 2 years, but is expected to account for 60% of all locations in service by 2012 (Source: Celent analysis)
- The top 30% of small businesses that expressed strong interest in RDC installation declined to 10% when a $50 per month charge was imposed (Source: Celent)
- Small businesses will switch financial institutions for better ePayments products (51-57% of all small businesses with revenues between $500K and $5M said they likely will switch, per BAI's survey)
On financial institutions:
- Almost all banks, whether retail or commercial in focus, whether large or small, either have a Remote Deposit Capture (RDC) solution, are piloting one or are planning one
- 60%+ of FI's RDC solutions offer a single product to serve all clients; 30% are planning a separate RDC product for small business
- Most Fis (70%+) still sell RDC through Treasury Management, and do not have a dedicated RDC initiative for small business
- 65% of Fis purchase and self-deploy scanners; 35%+ sell the device up-front, and an equal and growing number bundles it into the monthly service charges
- 45% of the Fis surveyed by Celent expect pricing to remain much the same as it is now; our Forum members and my personal opinion is different: I think the device will be given for free, and monthly fees will be somewhat reduced while per item and per batch fees will increase
- Target segments include property management firms; health care providers; insurance brokers; law firms; realty agents
- The small business opportunity is large and growing
- A "one size fits all" solution is price-ineffective for small business; offering several devices is key, given the small volume of checks for small business
- Consider revising your pricing to increase the variable component and decrease the fixed component to increase market receptivity
- Reducing "desk float" is an important benefit to small businesses, IN ADDITION TO the time taken away from the office
In today's world, where deposits are king and fee income dollars are highly valued and scarce, targeting small business payments services is an opportunity that should not be missed.