Eventually, it won’t be enough to simply offer robust cash management and online balance reporting to your business clients. With the Web providing the ideal platform to build industry- and customer-specific service offerings, and with QuickBooks opening its code to developers www.developer.intuit.com , we expect a proliferation of specialized small business banking and financial management sites to hit the market during the next few years.

As the economy continues to improve, the big banks will again aggressively court small and mid-size businesses with creative financial management via Web-based services, often licensed from outside developers. The innovative services will be offered in part to make up for perceived service shortcomings in the small business market.

In turn, community banks will need to fight back with online offerings that enhance their level of personal service delivered to local businesses. Luckily, vendor offerings will make even the most complicated Web-based service affordable to the smaller financial institution.

Whether you are small or large, we think you must pay attention to the accounting and billing needs of your business clients. Intuit has made tremendous strides in serving that need, and as they move into offering more and more financial products to their accounting software customers, banks will feel the pinch. Banks should consider teaming with Web developers to build small business financial and customer-management systems that could be deployed in the next 18 to 24 months. By then, account aggregation will be widely used and should also be incorporated into your Web-based solutions.

Looking at the big picture, we see strong synergies between banking and accounting. Prior to the Web, there was no cost-effective way to bridge the gap between financial data housed in your mainframes with that housed in the PCs of your small business clients. Today, the Web is the ideal medium for tightly integrating your banking services with your clients’ accounting activities.

Intuit has already built impressive software-to-bank linkages for QuickBooks and Quicken customers. To some extent, the shrink-wrapped software is a Trojan Horse, positioning Intuit-controlled links to its partner banks right on the desktops of your best clients. You can fight back by incorporating billing, accounting, and financial management functions on your Web. And there are now off-the-shelf solutions, such as Fidesic that allow banks to provide payment services to Quicken/QuickBooks users.

We think businesses would be very receptive to Web-based financial management services running on encrypted, secure and trusted servers controlled by the bank, so called Virtual Accounting Services¹ (see table below).                                                         

¹Virtual Accountant is a trademarked name from Virtual Growth  www.virtualgrowth.com

Virtual Accounting Services

*Approximate monthly subscription price; additional transaction fees would apply for certain services.

Pros

Each of the virtual products outlined in this section could provide the following benefits to your bank:

•          Profitable, incremental fee income.
•          Publicity and image enhancement from being the first in your market to integrate banking functionality into an overall Web-based small business management site.
•          Differentiation of your banking services.
•          Good word of mouth around your local business community.
•          Virtual accounting products could be licensed to other banks.
•         You can head off further inroads into your revenue base from Intuit partner banks.

•          Weak/uncertain demand: Small and micro businesses have been relatively slow adopters of new banking technology (see OBR 70/71).
•          Development costs: Building a robust, highly secure new system will be pricey; you will probably to partner with an accounting software developer which already has code for the basic functionality.
•          Uncertain ongoing servicing costs: Being on the bleeding edge has its risks; it will be difficult to predict ongoing costs for system maintenance, software development, and customer support.

Virtual Checkbook

Description: An electronic checkbook is the foundation of any small business banking Web offering. It’s fundamental to the stability of your Web services, but there isn’t much you can do to differentiate it from other banks. It’s what’s on top of the foundation that will attract buyers.

Basic Functionality: A good virtual checkbook must include the following functions:

•          Balance inquiry across all business and personal accounts maintained at your bank.
•          Transaction history including basic look-up/search capabilities to find all transactions by date range, by type, by check number range, and by transaction amount.
•          Bill/invoice payment
•          Email to and from the bank

Advanced Functionality:

•          Transaction account aggregation (checking and credit cards)
•          Different authority/access levels for each account
•          Templates for common reports, such as transactions by quarter, transactions by check number, etc.
•          Email integrated with bill pay including:
•           Forms for creating payee communications quickly
•           Filing system that stores all previous communications with the payee
•           Search function for finding text strings in previous messages to payees
•          Fax/email statements
•          Balance notifications
•          Transaction confirmations
•          Wire transfer and ACH initiation
•          Download data directly into personal finance, spreadsheet, or accounting software programs
•          Email reminders (input by user)
•          Email forms for communicating different matters to the bank quickly
•          Permanent searchable archive of all communications with the bank

Virtual Office/Desk

HotOffice, now owned by Thruport Technologies has been providing virtual officer services since 1997.

Description: Create a place within your Web for small businesses to set up a home base for work and collaboration on the Web. These services are commonly called virtual offices or intranets (see HotOffice screenshot above). Other possible names: virtual desk, virtual briefcase, or intranet. It could also be marketed to the estimated 39 million U.S. households with a home office.

Functionality: We think banks could create their own simple and easy-to-use virtual offices integrated with banking and financial matters. A further emphasis on local content/links could keep you ahead of the competition. Here are the features we recommend:

•          Financial calendar/datebook/reminder service integrated with bill payment.
•          Virtual safe deposit service that automatically stores financial and other files in secure, encrypted, off-site back-up files not accessible by anyone but the owner (not even bank personnel); can be retrieved on CD for disaster recovery.
•          Free email with emphasis on secure communications with bank.
•          Email notification services
•          Virtual receptionist that tells visitors how to get in touch with someone at your business.
•          Company message boards
•          Ability to post documents to the Web, which can be shared with everyone or just authorized employees and/or customers.
•           Unified messaging service that provides a single Web page where users can send and retrieve email, faxes, and voice messages. For more information see J2 (formerly Jfax)  www.j2.com  and MessagePoint  www.messagepoint.com )

Side Note: You also might consider setting up virtual offices for your own loan officers and other customer-contact personnel.

Fidesic offers a solution that could be used by small business customers to send electronic invoices and receive electronic payments. Interfaces to major accounting packages make it especially useful.

Virtual Bookkeeperr

Description: As its name implies, the Virtual Bookkeeper provides extensive accounts receivable and accounts payable services from a Web interface.

Functionality: The Virtual Bookkeeper expands on the Virtual Checkbook and Virtual Office with the following additional features (for more ideas, see also,  www.quickbooks.com/products/web )

•          Billing statements and invoicing via email, fax, or snail mail; includes reminders, and confirmations.
•          Online, cash-based accounting functions including data entry, categorizing, and basic report generation.
•          Bill payment/accounts payable monitoring functions, such as email notification when payment transactions are awaiting authorization by business owner; email flags when payment transactions don’t clear in a reasonable time.
•          Autopay function that pays certain bills automatically each month when preauthorized by the client.
•          Full interbank transfer capability to and from any financial institution.
•          Virtual credit card terminal with integrated email and hooks to accounting systems.
•          Lock-box service for paper check processing with full integration to client’s accounting system.
•          Option to share selected information with outside advisors such as a CPA.

Virtual CFO

Description: Just like the real world, the Virtual CFO takes the data entered by the bookkeeper and puts it into a broader perspective that allows a business to be more profitable.

Functionality: The following features could be added to those already offered in the Virtual Bookkeeper, Virtual Office, and Virtual Checkbook modules:

•          Online payroll with paper or direct deposit paychecks, and electronic payroll tax payments.
•          Online federal and state tax return preparation and filing.
•          Full-fledged double-entry online accounting
•          Complete disaster recovery services including a redundant data center. Here’s an area in which banks’ inherent in-house expertise could be turned into a profit center.
•          Complete Web-based customer file management and communications including:

-          invoicing/billing with Web integration
(e.g., bill presentment)

-          payment services/inquiry via the Web

-          email/fax/voice messages automatically confirming payment

•          Access to a CPA-on-call to handle questions. The CPA could deliver advice publicly on your Web, privately through confidential conversations with your business clients, or both.

•          Automatic excess funds allocation to minimize interest expense and/or maximize interest income. For added value, the funds “sweep” could go to investment and loan accounts at any financial institution (not just yours).
•          ECommerce services for hosting secure transactions.
•          Accounts receivable management that automatically notifies the business owner and/or customers when accounts are past due; includes linkages to a virtual payment window (below).
•          Virtual payment window, carrying bank security messages, that clients can display on their Web site to accept credit card or check/ACH payments online; includes integrated messaging confirming orders.
•          Extensive management reporting easily customizable using drop-down menus; for example, revenue reports by customer, accounts receivable aging, quarterly P&L; and so on.
•          Mail merge capabilities that work across any medium, email, fax, page, voice message, or snail mail; option to outsource snail mail services to a mail house; label-printing utility.
•          Retirement plan administration including Web views for participants; includes email statements.
•          Project tracking module integrated with reminders and other Virtual Office services.
•          Employee expense reporting, cash advances, and reimbursement services.
•          Issuing prepaid Visa cards to customer rebates, expense account cash advances, and so on.

Numbers News

2/15/02 Bank of America reported that 4.4 million of its 27 million customers now bank online.

3/5/02   DiscoverCard reported that 8 million of its 50
million cardholders have registered at its Web.