Brett King

Posts Tagged ‘SME’

Business Internet Banking – What does PFM for business look like?

In Business Banking, Customer Experience, Internet Banking, Offer Management on September 15, 2010 at 11:05

Have a look at your bank’s local website in respect to business internet banking and you’ll see lots of demos, and promotion of basic features like ‘instant balances’, ‘convenient transactions’ and ‘anytime access’. In 2001 that might have been world-class features but today that’s tired, boring and hardly a differentiator. So why haven’t we seen much improvement in business banking since 2001? Basically because most banks are out of touch with the day-to-day banking needs of their corporate customers.

The Three worlds of Business Internet Banking

There are effectively three worlds in Business Internet banking, there is the sole trader, the Small to Medium size Operator (SME) and the Large Corporate. In respect to platform, the challenges of the sole trader and SME are somewhat similar operationally. However, for a sole trader, they tend to run their bank account more like a personal facility, but with business transactions coming in and going out. They usually have a very small staff footprint, if any, but their primary banking activities are paying for goods and services, and chasing payments from customers/clients.

The SME has, by definition, fewer than 100 employees. They have the same concerns as a small trader, but incorporated in operational concerns are payroll and Human Resources functions, and the job of managing cash flow – increasingly tough in a challenging economy. The large Corporate has a much more complex environment from a payments and banking perspective. Managing complex suppliers and procurement relationships, group life, health and pension concerns, along with credit facilities, receivables management, etc. So what role can Business Internet Banking (BIB) 2.0 play in the corporate landscape today?

The Sole Trader

Collecting money is one of the biggest challenges for a small trader, as cash flow needs are often acute. Especially in the early phase of the business, a sole trader will often be operating hand-to-mouth, month-to-month. So the ability to collect payments is critical. However, as dealing with cheques and cash becomes increasingly erroneous, many sole traders turn to Merchant services either through POS capability or e-Commerce integration to solve the payments dilemma. But if you are a sole trader, good luck on getting a Merchant account.

Many banks require a minimum of US$100,000 a year in transaction throughput before you ‘qualify’ for a merchant account. Then the onboarding process for a merchant account is extremely complex. You need to sign contracts with the bank, with each of the card issuers (Mastercard, Visa, Diners, American Express, Union Pay, etc), and you typically need to set up a completely new ‘merchant’ account. This process is not simple, and in many cases small businesses just don’t qualify. Additionally, ask a sole trader when they were ever proactively offered a merchant account…

This is one of the reasons we see a host of workarounds for accepting bank payments today. Jack Dorsey, one of the founders of Twitter has started up Square, a cheap and fast alternative to traditional merchant onboarding. Square has had some recent competition in Europe (UK and Germany to start with) from iCharge. There are also a bunch of online virtual merchant and e-commerce payment options from the likes of Shopify, Yahoo! Merchant Solutions, then you have Amazon and Google Checkout, many, many more. However, the future looks bright for sole traders. With Visa announcing trials of NFC mobile payments this year, with Orange and Barclaycard doing the same in the UK, and Apple hiring some big names in NFC for their next iPhone – we’ll all soon have the ability to accept contactless payments with ease as our phones become POS terminals of a sort.

With payments sorted, the remaining issue is cash-flow and financial management. As I already posted back in June, there are huge possibilities in the area of Accounting, Cash Flow Modeling and Credit services in the cloud. But don’t think cloud as in outsourced from a banking perspective, think that the bank is the ‘cloud’ and the Business Internet Banking platform is the services layer that provides the key functionality to customers. Already the sole trader today probably has most of his transactions going through one account – so his bank statement is effectively his general ledger. Be smart banks … formalize this. Recognize that the sole trader’s internet banking system – is also his day-to-day accounting function. Enable that, and you have something really helpful for the small business owner.

Small to Medium Enterprise

Small-to-medium size businesses face their biggest challenges oddly enough when they are dealing with rapid growth. Small businesses don’t have a huge pool of resources to draw upon, so when business steps up a notch the hiring lag can often be a problem, as can be hiring ahead of the receivables. Take a medium size company of 20-30 employees, and throw a $3-4m contract at a company of that size – life changing yeah? Maybe, but if your total revenue last year was $4m and you are going to double that, you need to hire another 15-20 staff today. Problem is, the cash isn’t going to come in until the end of Q1 next year? So how can you afford to ramp up? This is the type of scenario where banks are supposed to help, but are too risk adverse these days to assist.

SME's often face their toughest challenges in times of rapid growth

By getting closer to SMEs and understanding their business better, there are real opportunities here. But don’t stress about the investment in direct banking resources, just offer SMEs a platform where they can upload their accounting data and get free cash flow analysis, along with suggestions about how to deal with cash issues. The system then can act to provide better triggers for SME relationship managers to talk to their clients. Right now banks do a lot of waiting for clients to come to then, and they the first thing we ask is to provide the last 3 years of accounts. I’m proposing a reversal of that. Get the accounts by allowing SMEs to upload them to their Internet Banking platform, offer free financial analysis and on the basis of smart analysis, provide the services customers need as they need them, not only when they ask for them.

Conclusion

Business Internet Banking can become the platform for so much more leverage with Business clients, but today it is a very basic transactional platform for the bulk of customers. We need to shift it to become the PFM of business banking – a toolset that enables the bank to help your business when you need the help, not only when you ask for it.

I’ll discuss Business Internet Banking for the large corporate on my next blog.

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BANK 2.0: SME Banking in the Cloud

In Customer Experience, Groundswell, Internet Banking, Retail Banking, Social Networking, Twitter on June 24, 2010 at 01:57

I met Friday with Mike Hirst, CEO of Bendigo and Adelaide Bank, one of the top banks in Australia today. As we discussed the need for community banks to get better at servicing SME business needs moving forward, we had a really interesting brainstorming session on where to go next. Mike is an easy going guy and I think he’s created a really positive, open culture at Bendigo that will pay dividends as they take market share away from the majors in Australia.

I guess it’s an obvious statement, but for small to medium size businesses, banks provide a logical partnership as an enabler for a range of bank services. Mike explained that Bendigo and Adelaide Bank has, in recent times, been providing a range of services to small businesses beyond the traditional merchant, trade finance and credit services including extended services such as cash flow and accounting analysis, SME advisory, website/minisite development, telecommunications deals as a reseller, and similar services. Recently ANZ launched The Small Business Hub, as a way of extending more services to their SME clients. American Express has gone one step further with their Open Forum platform as an attempt to engage the broader business community in actively sourcing solutions. Bendigo Bank has tried to facilitate community involvement through their PlanBig portal.

As Mike Hirst and I discussed Bendigo’s wish to provide a better platform for SMEs to grow their business, it occurred to me that almost all the services we were discussing were candidates for the cloud. Here are a few that came to mind:

Accounting, Cash Flow Modeling and Credit Services:
Plugged into an SME’s basic accounting package (think MYOB, etc) the ability to provide some intelligent tracking of cash flow, help businesses to think about aged receivables and rightsizing a credit or overdraft facility is a very valuable tool. A plethora of these are being introduced into Internet Banking facilities this morning, but extending a basic accounting facility with cash flow analysis tools that is an extension of your banking relationship is not a stretch. Ben May, MD of OnlineFactor, recently showed me a new tool they had been playing with called Imagineering Profit which allows users to plug in their basic financial statements and get some great analysis on break-even, cash flow, and various what-if scenarios.

If this could be married with basic account information, accounts and invoicing data, etc – this could give SMEs a nice tool embedded within banking to start to look at a basic overdraft facility, factoring, inventory financing and a whole range of complementary services.

Easier Merchant and P2P Enablement
E-Invoicing is becoming increasingly important as part of the SME toolset for commercial banking. RBS recently has launched a range of services including e-Invoicing and electronic accounts receivables/payables management. HSBC Net for some time has offered Accounts Payable Integration which allows for e-Invoicing, better cash-flow projections and management, etc. The name of the game here is simplifying processing, improving the likelihood of rapid payment and better bank integration into your payments and receivables process.

By 31st October, 2018 the UK Payments Council has mandated that central cheque clearing will be phased out. The decline of cheque use in the UK has been widely documented. In 2000 cheques represented 25% of all non-cash transactions, but by 2008 they accounted for less than 10%, this year they will be less than 5%.

This is also where the mobile device and P2P platforms come into play. While debit cards have had big success in recent times, as credit and debit cards are integrated into your mobile phone for contactless payment capability, it is obvious that the use of cheques and cash will further decline. With the introduction of Square and Verifone PayWare it is becoming increasingly simple to provide merchant type services to accept payments.

But Person-2-Person is the big innovation for SMEs and businesses. In 2009, financial institutions including Bank of America (BAC), ING Direct and PNC Financial (PNC) rolled out so-called P2P technology that lets customers use the Web or a mobile phone to transfer money from their account to any other account. Within the next 3 years our phone will become the payment device of choice for paying SMEs who work in the service arena. This makes cloud services even more viable as SMEs will increasingly rely on virtual platforms to effect and receive payments. The ability to augment basic banking services to capture the need for virtual P2P and payments capability is a no-brainer.

SME Community Building
There are hundreds of thousands of groups currently active on LinkedIn, many dedicated to SME forums and the like. Ecademy is an social networking site based in the UK, but active globally with more than 17 million members. A survey by O2 in the UK showed that more than 600 SME businesses were joining Twitter everyday, and that 17% are already actively using Twitter to support their business.

SME community building is a great way to empower businesses and is a logical extension of the already powerful network that banks have with their customer base. Banks don’t use their community of clients to encourage interactions, but as a trusted intermediary it makes absolute sense for bankers to utilize their community to encourage internal business between their SME clients. The cloud and online communities such as LinkedIn, Ecademy and others seem like the perfect partner to kick this off.

Conclusions
The cloud is increasingly critical for SMEs not only for facilitating business, but also for enabling closer connections with partners, integrating shared services, improving payments and cash flow and marketing their services. Banks have a huge opportunity to be not just a trusted partner for banking services, but extending their platform to help SMEs build their business.

There’s one key problem with banks extending platform for SMEs. To illustrate, the current e-Invoicing and Accounts Payable Integration services banking provide today, a process designed ostensibly to reduce paperwork for an SME and improve cash-flow, is saddled with an antiquated, compliance heavy sign-up/application processes that mean the initial onboarding for such services is erroneous and time consuming. The benefits aren’t there for SMEs if the application process takes more effort than the benefits.

By better integrating customer learning and moving SME accounts management to the cloud, a bank could provide a range of great services that really help SMEs manage their businesses and cash-flow more economically, but to do so they are going to have to think differently about engagement.