By now, there’s no denying it: Small businesses (SMBs) aren’t happy with the service they’re getting from large financial institutions (FIs).
Only a few months ago, researchers at FIS found that SMBs lament the lack of options for high-tech products and services offered by their banks, with 14 percent of small businesses surveyed having already switched their financial service provider in the last year. Earlier research from ACI Worldwide similarly found that SMBs are considering switching providers in order to gain access to more high-tech products.
The problem, says Brian Merritt, CEO of small business banking provider Seed, is that the alternatives aren’t great.
“Why switch from Wells [Fargo] to Bank of America when you’re getting essentially the same experience?” he recently said.
As the demographics of entrepreneurs and freelancers continue to shift toward millennials and younger professionals, Merritt told PYMNTS that dissatisfaction with traditional FIs is likely to persist.
“There is an overarching secular shift that we’re seeing in the business community, where owners and founders are getting younger, and as they get younger, expectations go up in terms of better technology, design and experience,” he explained. “Along with expectations comes more willingness to try new things and explore alternatives.”
Seed is hoping to become that go-to alternative for small businesses fed up by their existing banking providers. Already, Brian Merritt said, he sees small businesses desperate to try something new.
Merritt is a former executive of Simple, an alternative banking solution for consumers, where he said he saw SMBs trying to force that B2C service to work for their B2B needs.
“At Simple, we saw a lot of business owners using it to run their businesses — and that’s concerning to us,” he said. “We think there are risks in mixing personal and business finances. But what we took from that is this community is desperate to use better services, even if they’re trying to make something work for them that’s not designed to.”
How Traditional FIs Fall Short
There are several scenarios that cause a small business to fall out of favor with their traditional FI, Merritt explained.
One trend he’s seen is an influx of what he described as “Wells refugees,” the small businesses that are former Wells Fargo customers “frustrated by the scandal” and now looking elsewhere to have their banking needs met.
In general, though, there are small business owners simply frustrated with the experience they’ve had with their FIs.
“Small businesses are falling through the cracks,” he said. “Maybe someone [is] trying to open an account, and the typical paperwork involved takes a long time. That’s a discouraging experience right upfront. That might be your first business bank account ever, and it sets a tone for frustrating interactions people have with their banks over time.”
A recent survey conducted by Seed found that small business owners are frustrated with a lack of their financial service (FinServ) providers playing the role of advisor, with less than a third of SMBs surveyed reporting that their current provider offers financial insights, and only a quarter saying their bank provides business management advice.
According to Merritt, large institutions may be able to fulfill SMBs’ needs for a better technological experience, but if they want an advisory service, they have traditionally turned to the community bank. The problem today, he added, is that community banks are unable to fulfill SMBs’ needs for a better technological experience.
“Community banks are increasingly challenged to compete with bigger banks out there who can build the branches and acquire customers and be able to invest in their technology and services,” said Merritt. “Traditional community banks get to know their customer, seek to understand their business and how it fits into the business community around them. But they’re failing to offer these folks looking for things as simple as a mobile banking app.”
This trend forces small business owners into a sort of FinServ Catch-22.
“They have this mismatch with the banks,” he said. “With big banks you can get great technology without personal service, and with community banks you get great personal service but no technology.”
Seed aims to combine the personal service of a community bank with the high-tech offerings of a large FI. But Merritt knows that it may not be an easy switch for small businesses to take the leap from a well-known bank brand to a newcomer, especially at a time of major market shifts and uncertainty.
“We see all these changes in our economy, and the nature of the average business person,” he said. “We talk about automation, jobs going away and how the majority of jobs created in the last 10 years are part-time, gig economy jobs. Things are changing and moving quickly.”
But these changes offer an opportunity for FinServ providers to help small business owners and entrepreneurs remain resilient, he added.
“Independent of what our job is, this affects all of us — we’re all in this economy,” said Merritt. “The scary stuff is out there, but it’s really exciting for us to see more people taking the leap into becoming a business … that’s scary for them, and we have to do some catching up in the industry to create the right support surrounding new business owners. But it’s also really exciting because the reality is that starting and owning your own business is one of the best ways to build economic security within our economy and society today.”