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How to Cater to Small Business’ Needs

By: Bill Ready

The impact on bank revenue from last year’s regulatory changes regarding collection of fees for account overdrafts and interchange has left banks of all sizes asking one question: How do we supplant that lost revenue? Nearly one year later, replacing the revenue and profits lost due to Regulation E and the Durbin Amendment remains a top concern, yet large and small financial institutions alike are learning that small businesses can be the ideal target to create such growth.

Much emphasis has been placed on reducing expenses and charging fees for previously free activities, which can have the unintended consequence of lowering customer satisfaction. However, banks can also make up for lost profits by focusing on new services that create additional revenue opportunities and increase customer satisfaction. For example, services such as expedited payments, person-to-person transactions or account-to-account transfers can help to raise the profitability of a bank’s existing client base. Additionally, community banks have a particularly significant market opportunity to serve small businesses by offering services that are tailored to their specific needs. However, many banks are still vastly underserving these customers by allowing them to use products designed for consumers, not to mention missing out on revenue generation opportunities from a customer segment that is accustomed to paying fees for services.

To ensure that small business customers reach their maximum profitability, regional and community banks must first understand what they are lacking in their business banking offerings. For most banks, that missing piece is limiting small businesses owners to the availability of consumer-driven online payment solutions, which — in several ways — does not address many of a small business’ distinct transactional needs. Rather, it is important to have a product to meet these customers’ specific needs in a way consumer products cannot: wrapping permissions, entitlements and multiple user management around bill payment; addressing payroll deposits; providing accounts receivable management through online invoicing and payment acceptance; and creating customizable reporting.

Providing a comprehensive suite of small business cash management and payment options to these customers not only enhances the service relationship between the bank and that small business, but also creates several opportunities to generate fees for those services. When a small business is moved from a consumer account to a small business account there is a significant reduction in the cost of that account as previously free transactions, such as online bill pay, produce fees for the bank.

Cadence Bank, a $1.8 billion institution with 35 locations throughout Alabama, Georgia, Florida, Mississippi and Tennessee, makes a clear distinction between the electronic transactional requirements of its consumer and small business customers by offering a bill-pay platform tailored to each. Billy Williams, assistant vice president and electronic banking manager, explains that the latter “requires more options than paying bills, but rather a robust small business cash management system.”

One benefit of deploying a small business-centric bill payment product has been the stronger tie-in it provides the customer to Cadence Bank, actually strengthening the banking relationship. It is common for small businesses to have accounts at different institutions, so the need to move money is common. With iPay Technologies’ Biz 2.0, a small business online bill payment solution, Cadence Bank was able to simplify this process using the platform’s inbound and outbound transfer capabilities.

Another inherent feature is the facilitation of payroll deposits, which can be done for multiple accounts.

Many small businesses may want to stop paying their employees by check, but lack the sophistication or desire to do ACH origination. For these small businesses, a better option would be a payroll deposit solution offered within their online banking and bill pay experiences. Within bill pay, check images are available enabling users to view a check image when it clears. Cadence Bank previously did not have easy access to these, which contributed to delays for the customer to verify the claim to a payee that was claiming non-receipt. That has changed as small business users can now more readily track these transactions and view check images for verification if needed.

Eric Carter, vice president of electronic banking at Laconia Savings Bank, an institution maintaining 19 full-service offices in New Hampshire with $1 billion in assets, explained that its small business bill-pay offering enables the institution to “become a one-stop source for small business customers due to its integration with online banking.” He added, “Small businesses need as much control over funds as possible, which in the least requires robust payroll functionality and effective means to invoicing. Through iPay’s Biz 2.0, we are able to offer an electronic payroll component that has been particularly relevant to our bank’s business customers. It enables businesses to streamline their back office processes and eliminates the money previously spent on checks or third-party payment services.”

Additionally, Laconia Savings Bank’s small business customers can now set recurring payments to more easily manage payday scheduling.

The bank also recently began offering Billpayperless, a part of the Biz 2.0 suite, which allows business customers to configure and then generate custom electronic invoices that they can then send to clients. The electronic delivery of invoices and the ability to collect them electronically allows the business to manage its accounts receivable more effectively and ultimately collect funds more quickly.

Laconia Savings Bank customers also enjoy the various reporting mechanisms. Small businesses can track what payments are processed, when they are received and by whom. Carter added, “Another feature that small businesses really value is the ability to categorize their spending. Our small business customers know that they can use our small business online bill pay to track their expenses and monitor where their money is going.”

Working with small businesses to ensure they have the tools they need to simplify daily administrative functions has paid off for Laconia Savings Bank. In 2010, it experienced a 50 percent increase in the dollar volume of payments made, as compared to the year prior. It also saw a 44 percent increase in the number of payments made.

Small businesses are not your everyday consumers. They have different needs. While the ability to pay any number of employees electronically or track unpaid receivables may seem relatively insignificant, in reality they are opportunities for small businesses to become more efficient and cost effective in managing funds, enabling them to therefore focus more on their core competencies. In return, small businesses are willing to pay for these services. Financial institutions addressing these unique needs with online services will enhance their small business relationships and ultimately drive greater profitability by creating new revenue opportunities and reducing their operating expenses for managing these accounts.

Bill Ready is president of iPay Technologies, a market leading and one of the fastest growing electronic bill payment providers in the United States. Visit for more information.

Copyright © March 2011 BankNews Media