The Future of Small Business Banking: Insights from Industry Leaders

On a late summer morning in New York City, industry leaders gathered at Mastercard’s Innovation Hub for Tearsheet’s flagship The Big Bank Theory Conference 2024. The event this year was dedicated to exploring the future of small business support in the financial sector. Attendees, ranging from fintech startups to established banking incumbents, anticipated insights from some of the most influential voices in the field.

Setting the Stage: The Global Impact of Small Businesses

Kicking the day off was Salah Goss, Senior Vice President for Social Impact at MasterCard’s Center for Inclusive Growth. Goss began by painting a vivid picture of the small business landscape worldwide.

“Imagine a world without small businesses,” Goss challenged the audience. “It’s almost impossible, isn’t it? That’s because small businesses make up 90% of businesses and 50% of employment worldwide. In the US alone, they account for 50% of the GDP.”

Goss went on to introduce MasterCard’s “Strive” program, a global initiative designed to support small businesses through three key pillars:

1. Access to credit
2. Access to digital tools and digitization
3. Access to networks and know-how

She shared an inspiring success story that brought these pillars to life. “Let me tell you about Brian,” Goss said. “She’s an urban farmer in Watts, a community in LA, where we support an organization called Think Watts. Through our digital payment tools and analytics, She could suddenly see which plants her local farmers’ market preferred – indoor houseplants or outdoor flowers. Brian’s sales skyrocketed by 70%. That’s the power of digitization for small businesses.”

Goss continued, “In Strive USA alone, we’ve already helped partners unlock about $44.2 billion in affordable credit to small businesses. But we’re not stopping there.”

Beyond the goods and services SMBs offer they often also function as community hubs. Critically, SMBs provide jobs and fuel for their local economic engines; just under half of private sector employees are employed by one of the 34,000,000-plus SMBs in the US.

While every business is unique, there are some common challenges— concerns around tracking, forecasting, and understanding cashflow, for example. Time is another: SMB owners and managers wear so many hats, from selling a product or service to often serving as a one-person HR department.

“Running a small business is hard and owners are looking for help. Frequently, they’re turning to the partners they already trust, like their banks, to help solve these pain points. As our co-founder and CPO, Tomer London, likes to say, ‘There’s never been a better time to build tools for SMBs.’ Banks have an incredible opportunity to do just that,” said Yi Liu, General Manager of Gusto Embedded.

The Art of Partnership: A Banker’s Perspective

Mark Valentino, President of Business Banking at Citizens Bank took the stage, dressed in what he jokingly referred to as his “banker’s uniform.”

“I was told to give a TED-style talk,” he quipped, “but I don’t own any turtlenecks, so you’ll have to settle for this suit.” The room broke out in laughter, creating a warm atmosphere for his insights on the importance of partnerships and integration in small business banking.

He outlined three key principles, emphasizing the importance of understanding small business needs. “We call it the guiding North Star,” he explained.

Truly understanding the needs of small businesses. Are you solving the right problems? “Because let me tell you, we’ve all been guilty of rolling out great ideas that solved the wrong problem.” Valentino emphasized that it is critical to identify customers’ pain points accurately, and not just roll out great ideas that don’t address their actual needs.

Integration and creating seamless, frictionless experiences for customers. He discussed the importance of integrating solutions within the Citizens ecosystem so customers don’t have to juggle multiple applications. “Everything we’re doing at Citizens is about integration. We want [our business customers] to live in there and be able to do everything, whether it’s their payroll, payments, or their invoicing needs. We want them to be able to interact with their customers and their vendors all in one sign on,” he said.

Fostering a culture of growth, not just for Citizens’ own profitability, but for helping small business customers grow and succeed. He gave examples of partnerships like Mastercard Digital Doors, which offers marketing and financial tools to small businesses, and Luminary, a gender inclusive, global professional education and networking platform created to address the systemic challenges impacting women and our allies across all industries and sectors.

The banker painted a vivid picture of the typical small business owner’s challenges. “Picture this,” he said, gesturing to the audience. “An electrical contractor in Boston, a minority-owned consulting firm in New Jersey, and a veteran-owned orthopedic treatment center in New Hampshire. What do they have in common? They’re all going up against larger competitors, struggling to hire and retain employees, and they’re all super stressed out. They’re short on time and long on problems.”

To aid SMBs get things done fast one way is to consolidate tools. “Time-strapped SMB owners increasingly seek integrated solutions to solve their business’s needs. That’s why there is traction among banks looking to offer additional value-added services to their SMB customers, whether payroll, point-of-sale solutions, or invoicing services,” said Liu.

The Digital Revolution in SMB Payments

As the event progressed, Chris Ward, head of enterprise payments at Truist, took the stage to discuss the evolving world of small business payments. Ward introduced what he called the “3S’s of the economy”: Simplicity, Speed, and Safety.

“Think about the last time you ordered something on Amazon,” Ward challenged the audience. “Did you need someone to come to your house and teach you how to do it? Of course not! That’s the level of simplicity we need to strive for in financial services.”

Ward delved into the persistent use of checks in small business transactions. “You’d think after the pandemic, everyone would have abandoned checks,” he mused. “But here’s the kicker – check volume in B2B transactions is still growing!”

This revelation led to a fascinating discussion on fraud risks associated with checks. Ward shared an anecdote about his daughter, who also works in the payments industry. “She’s always joking with me about her smaller customers,” Ward chuckled. “I can’t believe these customers don’t use Positive Pay,’ she says. It’s a family affair in payments, folks!”

Cash is still king for SMBs

Scott Beyer, Head of Business Banking Digital Experience at US Bank, presented on the changing payment and cash flow needs of small and mid-sized businesses (SMBs). He highlighted how these needs are driving SMBs to adopt new technologies, and how financial institutions (FIs) can simplify the complex ecosystems SMBs operate in.

He discussed findings from a recent US Bank survey, which revealed that 87% of small businesses remain optimistic about their future, despite challenges such as inflation and talent shortages. Small business owners are eager to adopt technology that helps streamline operations, but they seek solutions that save time and allow them to focus on running their businesses rather than managing financial processes.

Beyer identified three critical areas for FIs to focus on:

Availability of Digital Products: Ensure banking products are easily accessible and digitally available, enhancing convenience for small business customers.
Integration of Services: Build seamless internal and external integrations to simplify business banking, payments, and other operations for clients.
Data Harmonization: Align and consolidate fragmented data to deliver personalized insights and streamline financial management for small businesses.

Beyer concluded by urging banks to prioritize investment in infrastructure and data integration to create a more connected banking, payments, and software ecosystem that better serves SMBs.

When conceptualizing what their software ecosystem is going to offer to their SMB clients, banks need to consider the biggest pain points for these customers. “Running payroll for 300k+ SMBs has taught us a few lessons about SMB cashflow. Many customers tell us payroll is their largest regular expense. And meeting payroll each week  — will they have the funds, will payments from customers clear in time, do they need to access a line of credit — can be a source of stress. However, banks also have visibility into the revenue side of an SMB business and are in a unique position to offer payment options and digital tools that help SMBs better understand, manage, and forecast their end-to-end cashflow,” said Liu.

Embracing the Future: AI and Beyond

The event included a look toward the future with a discussion on emerging technologies. Goss shared MasterCard’s latest innovation – an AI-driven chatbot for small businesses.

“But here’s what makes it special,” Goss explained. “It’s inclusive. When business owners from underrepresented communities ask a question, the response reflects their unique experiences and needs. It’s not just a chatbot; it’s a digital ally that truly understands them.”

After the day’s speakers and three closed-door working groups exploring SMB issues in depth, it was time for networking before calling it a day. This year’s The Big Bank Theory was a catalyst for change, intimating a new era of empowerment for small businesses in the digital age. As one attendee was overheard saying, “This isn’t the end of the conversation. It’s just the beginning.”