Recommended Online Products and Services for Micro Businesses (NetBanker)

Small business attitudes are changing as online banking services become easier to navigate and more useful. While it currently seems impossible to eliminate the dependence on the branch for physical deposits, with the widespread adoption of check imaging and electronic payments, most non-cash-oriented businesses will be able to bank remotely. Both PNC Bank and NetBank have announced plans to equip their business customers with paper check scanners that will allow the remote deposit of paper checks.

But even the best website and product offering cannot substitute entirely for the human touch. Every business should have a contact available by phone, email, or instant message. Small business owners should be treated like private banking clients.

Recommended online products and services

In theory, small and micro businesses represent one of the most lucrative, and relatively untapped, sources of incremental business. The reality is that businesses are difficult to reach unless you are competing for their loan business. A product offering optimized for business will differ somewhat from one built for consumers. The following sections detail potential online features for various microbusiness products.

A. Transaction accounts: checking & cards

While the overall banking relationship may revolve around the commercial loan, online banking is all about the transaction account(s), e.g., checking and credit card accounts. Smaller businesses often track their financial progress through their bank accounts, using them as a proxy for sales, cash flow, and profits. Business users are also more likely than consumers to value advanced features such as downloads, reporting, alerts, and multiple authorization levels. Some of the more promising features:

Custom data delivery: Periodic summaries of account activity whenever (daily, weekly, monthly) and wherever (text email, HTML email, or fax) the client chooses
Long-term archives: If Google can provide 1GB of storage for users of its FREE email service, banks should be able to provide unlimited archives for a fee

Table 27

Checking & Savings Account Deposit Options

Table 28

Online Features for Transaction Accounts: Data Display, Storage, and Value Adds

Table 29

Event Triggered Alerts & Authorization Messages to Support Transaction Accounts

Table 30

Balance, Activity, & Account Management Messages for Transaction Accounts

B. Payment and billing services

Next to statement information, epayment services are the second most important drivers to the adoption of online banking by small businesses. And unlike data access, epayments have the potential to become profit centers and/or a significant source of online differentiation. Most businesses make far more payments than consumers, so the importance of electronic alternatives is magnified. On the other hand, existing businesses already have a system for payment and billing, so it may be difficult to convert them to a new one that requires changes in internal procedures or software.

Your best opportunities may be in less systematic services (i.e. one-offs) such as electronic transfers between a business’s accounts at other financial institution (account-to-account transfers) and the occasional rush payment.

Table 31

Online Features for Billing, Payment Processing, & Funds Transfer Services

Table 32

Online Features for Payment and Accounts Payable Services

Table 33

E-messaging to Support Epayments and Ebilling

C. Credit and loan accounts

Every small business relationship should include a credit component. It’s the lifeblood of business, and a profitable product for financial institutions. However, many banks have been reluctant to make commercial loans to the microbusiness market. Average loan sizes, which are dwarfed by typical commercial loans, make the effort seem fruitless. Yet profit margins on the small business segment can be higher. Microbusinesses often use personal credit, primarily credit cards and home equity secured loans, to finance their businesses.

We believe every creditworthy microbusiness customer should have a package of three or four credit lines with your financial institution: an overdraft line of credit (connected to checking), a home equity line of credit secured by their personal real estate (if applicable), a business line of credit, and a business credit card. Even if the total commitment is no more than $10,000 initially, it will make the business owner feel like a valued customer; and each line can grow larger over time.

Table 34 contains a number of ways to use the online channel to strengthen credit relationships with small businesses. Some of the more important tactics:

Loan/line Hybrid: A flexible financing vehicle that includes an integrated line of credit and the ability to take out fixed loans from the overall credit line.
Startup Center: Information, tools, and resources geared towards startup businesses.

Table 34

Online Features for Lending and Credit

Table 35

Triggered Alerts for Credit and Loans

Table 36

Account Management Messages for Credit and Loans

Table 37

Example: Potential Annual Credit Product Revenue from a Microbusiness¹

Source: Online Banking Report, 6/04

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

Table 38

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

Source: Online Banking Report, 6/04

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

D. Deposit and investment accounts

The online component of deposit and investment accounts is far less important than for transaction and payment services. However, a robust online offering can boost deposit-gathering initiatives and improve retention. Key online components are listed below: Refer to the Checking/Transaction section for more ideas.

Table 39

Online Features for Investment and Deposit Products

Table 40

E-messaging for Deposits and Investments

E. Financial management & accounting

Although automated accounting and financial management services offer the biggest potential payback to small business owners, they are challenging to deliver. However, working through third parties, financial institutions of all sizes can help cement banking relationships with financial management services such as:

Visible and easy-to-use data downloading services
Tools to make annual financial updates and tax prep simpler
Online wrap accounts that handle all financial and accounting needs for an annual fee, see the section on the Virtual CFO, CPA, and Business Manager

Eventually, it won’t be enough to simply offer robust cash management and online balance reporting to your business clients. Using the Web as a platform to build industry- and customer-specific service offerings, we expect a proliferation of specialized small business services during the next few years. For example, several years ago QuickBooks opened its code to developers http://www.developer.intuit.com/ spawning numerous niche services built on the small business accounting program. Check out the QuickBooks Solutions Marketplace http://www.marketplace.intuit.com/

As the economy continues to improve, big banks will aggressively court small and mid-size businesses with creative financial management via Web-based services. These innovations will help counteract the perception that community banks provide better service. In turn, community banks will fight back with online offerings that enhance personal service delivered to local businesses. Luckily, vendor offerings will make even the most complicated Web-based service affordable to the smaller financial institution.

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 website using account aggregation, instant messaging, and “push” publishing technologies. Although, it will take time, we think smaller businesses will be very receptive to financial and management services running on encrypted, secure, and trusted servers controlled by the bank..

Table 41

Online Features for Financial Management

F. Service & client relations

Online services and other automation tools can be used to help relationship managers service and cross-sell to small business clients. Used judiciously, these tools can improve the perception of personalized service, even while they improve the productivity of the relationship managers by allowing him or her to handle a larger portfolio. Key components include (see Table 42 below for more):

Library of recommended preformatted emails that relationship managers can easily customize and send to clients
Private-banking-like service that treats small business owners like VIPs
Instant messaging for more private/secure connection between the client and their business banking officer

Table 42

Online Features for Self-Service

Table 43

Online Features for Client Relations

Table 44

General E-messaging to Support Client Relationship Management

G. Security and privacy

Although business users may understand the tradeoff between convenience and risk, the stakes are much higher. A breached small business bank account could cause thousands of dollars of lost productivity and sales, in addition to any funds that disappear. In addition, larger small businesses are always up against the threat of insider theft and fraud. So business owners need, expect, and will pay for more sophisticated security controls. For example:

Additional authentication and/or authorization for outbound funds transfers or payments
Token- or SMS-based authorization to access the account’s master level where new payees can be added, permissions can be granted, and so on
Frequent email messages tracking online account access and alerting the business owner to any suspicious or out-of-character usage, e.g., login from an IP address in Liberia
Comprehensive assurances and guarantees that accounts will not be compromised

Table 45

Online Features for Security & Privacy

Table 46

E-messaging to Support Security & Privacy

H. General website content/features

As branches are gradually replaced by websites as the place where most banking business is conducted, your online presence will become a critical part of your overall brand image. Branches will still have a role, but it will be limited to account openings, cash deposits, and the occasional visit to the safe deposit box. Websites catering to small businesses will become far more sophisticated, yet highly customizable and easier to use. Important features include:

Resources and discounted banking packages for start-up businesses
Separate URL that business clients can enter to skip the consumer section

Table 47

General Website Features to Support Small Business

I. Insurance

Compared to consumers, small businesses buy a lot of insurance compared to consumers. While banks may not be “top of mind” when it comes to supplying insurance, financial institutions can use their online presence to change that perception.

Table 48

Online Features for Insurance

Table 49

E-messaging to Support Insurance

J. Online sales and marketing

Even though microbusinesses are difficult to reach through traditional direct marketing, we believe they will readily seek you out if you provide credit and payment solutions targeted specifically to them, especially when in startup mode.

It’s important to make sure everyone, especially the line staff, understands that microbusinesses are to be actively courted, not avoided. Typically, bankers roll their eyes and trot out horror stories about past “nightmares” with flaky microbusinesses. Staff must be educated to the facts: Microbusinesses can be risky, but with proper pricing and risk management, the segment provides an excellent source of incremental profits.

In sales efforts, leverage the cachet of the branch manager. A single telephone call or visit with the local branch manager could be enough to land an entire microbusiness account. This all-important relationship with a human must be nurtured after the initial sale. Email, instant messaging, and other electronic tools can be effective in keeping the communication channels open.

Some other effective ways to increase your share of the microbusiness market:

Uncover microbusinesses within your own retail customer base by looking for random and fluctuating deposit activity.
Develop Web content that caters directly to the small business segments you are targeting, such as
- - Part-time businesses
- - Self-employed (including full-time sales) or 1-person business
- - Micro employers with fewer than 5 employees
Use professional copywriters familiar with small business terminology to create website copy, including FAQs.
Give business bankers “ownership” of the business part of your Web site to make sure it is up-to-date and speaks to the target markets.
Enlist business owners to evaluate your website and other marketing material

Table 50

Online Marketing & Sales Tactics for Small Business Acquisition and Retention