Microbusinesses typically purchase a hodge-podge of services culled from both retail and commercial banking product lines. For example, at our company, on the higher end of the microbusiness segment, we purchase 16 financial products to operate and finance our business; eight are consumer products, and eight are business products (see Table 1, below). Of the 16, nine are sourced from banks or thrifts, six come from non-banks, and one, bill payment, is the combined effort of a bank (U.S. Bancorp), a non-bank service provider (Checkfree), and a software company (Microsoft). Overall, these products cost us about $8,000 annually in fees and interest paid (for loans) and interest foregone (for checking).

But the internal costs for managing our billings, payments, and banking, are nearly three times as much, an estimated $23,000 per year. These are things we would gladly outsource to a high quality and VERY trustworthy third party, preferably someone with a regulatory and fiduciary responsibility to safeguard our information and assets, such as a bank. For more information on our “dream” financial management program).

Table 1

Financial Products & Services Used by OBR

Source: Online Banking Report, 4/01     ¹Fees and net interest foregone (deposits) or paid (loans) assuming 5% cost of funds

The 16 products listed on the previous page (Table 2) are the most common banking products used by microbusinesses; the core of your online offering. But to differentiate yourself from the competition, you need to add spice to product line with other business products and services. Table 3 below provides an online services feature checklist to assist you in planning your microbusiness service offering. The features are divided into 10 categories:

1.      Statement data: viewing and organizing balance

2.      Reporting: building financial reports from statement data

3.      Customer service: customer care delivered over the Internet

4.      Products: bank and non-bank financial products

5.      Accounting: financial management tools

6.      Payments: billing, electronic checks, bill payment, email payments, ACH, wires, invoicing, payment processing, credit cards

7.      Security/access: privacy, security, permissions, guarantees

8.      Other Web-based services: business tools, news, information

9.      Alerts: email, fax, telephone, and mail activity- and balance-level alerts

10.  Marketing: getting the word out to the difficult-to-find segment

Table 2

Online Services for Microbusinesses

checkmark = must have feature; R = recommended feature; O = optional feature
Source: Online Banking Report, 4/01

Credit Products

Every microbusiness account should include a credit component. It’s the lifeblood of business, and a large revenue driver for most financial institutions. Past history has shown considerable reluctance to make loans to the microbusiness market. Average loan sizes, which are dwarfed by typical commercial loans, make the effort seem fruitless. But if you look at the potential profit margin of the loans, the microbusiness segment looks better (see Tables 8 & 9, below):

Table 3

Example: Potential Annual Credit Product Revenue from a Microbusiness¹

Source: Online Banking Report, 4/01

¹Example for illustration purposes only, not based on actual research results

Table 4

Example: Potential Annual Credit Product Revenue from a Larger Small Business¹

Source: Online Banking Report, 4/01

¹Example for illustration purposes only, not based on actual research results