Reports of small business lending’s death are greatly exaggerated

I’ve spent much of my career in and around the financial services sector focused on small business banking. In the US, small business customers get bounced around like Goldilocks—they are too small to be of interest to commercial relationship managers and too complex to be easily understood by retail branch staff.

I applaud those banks that make a concerted effort to meet the financial needs of small businesses. After all, in the United States small businesses comprise 99.7% of all firms. (According to the US Census Bureau, a small business is a firm with less than 500 employees). In general, larger small businesses are better served as they use more banking products and generate more interest income and fee revenue than smaller small businesses. The lack of “just right” solutions for many small business financial problems has been a golden opportunity for FinTech firms.

In the FinTech space, much of the focus is on consumer-oriented solutions like Mint for financial management, Venmo for P2P payments, and Prosper for social lending. But FinTech companies figured out early on that small businesses weren’t getting the attention they deserved from traditional banks. Many of the top FinTech companies—Square for card acceptance, Stripe for e-commerce, and Kabbage for business loans, have gained prominence serving primarily small businesses.

Online small business lending by direct credit providers has especially taken off. Disruptors like Kabbage, OnDeck, and Lendio were quickly followed by more traditional players like PayPal, UPS, and Staples. Morgan Stanley reports that US small business direct lending grew to around $7.5B in 2014 and projects expansion to $35B by 2020. They also maintain that most of this growth is market expansion, not cannibalization of bank volumes. This makes sense—direct lenders usually attract borrowers that can’t get bank loans and charge accordingly. For example, Kabbage averages 19% interest for short term loans and 30% annually for long term loans. According to the Federal Reserve, the average interest rate for a small business bank loan (less than $100k) in August 2015 was 3.7% and current SBA loan rates range from 3.43% to 4.25%.

And that common wisdom that US banks have pulled back from small business lending? Let’s take a look at data compiled by the FDIC starting in 2010.

Small Business C&I Loans The overall volume of small business loans increased year-over-year from 2010 to June 2015, with a CAGR of approximately 3%. The total dollar value of small business loans outstanding dipped slightly in 2011 and 2012, reflecting slightly smaller loan amounts, a result of tighter lending standards. The facts are that US small business loan volume and dollar value outstanding are at their highest levels since the FDIC began collecting this data from banks. And by the way, there are almost 2,200 fewer banks in the US today than prior to Lehman’s collapse in 2008. Banks are happy to work with credit-worthy small businesses to meet their working capital needs. And direct lenders are happy to work with everyone else—-a win-win for all.

How to give a killer Finovate presentation

I’m attending Finovate Spring in San Francisco ( We’ve seen a number of great demos, and others that haven’t gone so well.  If you think of a classic consultant’s 2×2, with one dimension being strength of the idea and the other the strength of the presenter, probably the most unfortunate quadrant is the one that has a great idea, but shoddy delivery. Here are a few tips to help Finovate speakers give a killer presentation that will have the twittersphere take notice (with apologies to those who prompted the observations):
  1. First, before you do anything else, State the Problem that you’re trying to solve
  2. Have a demo that works; extra credit for something live
  3. Involve the audience, preferably with something live (see #2)
  4. Have a catchy slogan
  5. Print catchy slogan on a tee-shirt
  6. Speak in a Commonwealth accent (Australian, British, Kiwi, South African – they’re all good).  Americans think you sound smart
  7. Avoid using the terms “security,” “identity,” or “authentication.”  These are all terribly important, but from a presentation perspective, you’re starting from a hole ten feet deep.
Good luck to all of you presenting! And kudos, by the way, to Finovate for their iOS and Android apps.

Serving Small Businesses in a Digital World

The small business online banking space is fraught with confusion. Banks are still struggling to understand if their customers should be placed onto consumer online solutions, dedicated small business solutions, or even corporate cash management offerings. Today, the majority of small business online banking users are running on consumer solutions. By definition, this means that small businesses’ needs are not being met. That’s just the tip of the iceberg. Last week I published a new report that is all about figuring out how to serve small businesses in a digital world. This is no easy task given the unique state and requirements of this segment. It’s also amazing to me how many start-ups have popped up in this space over the last few years. Most are battling it out on their own, going after small businesses directly. A handful are using financial institutions as their distribution channel. It makes a lot of sense for banks to be the go to source for small business financial services. Figuring out what to offer via digital channels is just one of the challenges. There are far bigger issues for banks to tackle before even going down the digital route. Here are a few examples:
  • What exactly is a small business and how do we segment our small business customers?
  • Where does small business sit in the banking organization? Who is responsible for it? Should it be retail banking, corporate banking, something else?
  • What should be done with small businesses who are being treated as consumers (from a product and servicing perspective)?
  • What should we be asking small business customers about when we survey them and speak to them? How do we ascertain their needs?
The report goes through these issues and more, and of course dives into all kinds of trends related to online, mobile, and tablet for small business. Banks have a lot of work to do – there is an eager small business audience that awaits them and a slew of start-ups attempting to eat their lunch. If you would like to check out the full report please click here.

The Painfully Long Path to Electronic Payments Nirvana

Gareth Lodge and Zil Bareisis both blogged on the difficulties mobile payments have had at the London Summer Games over the past few weeks. I have nothing to directly add by way of personal observation, since I’ve been stuck in Atlanta the past few weeks.

Gareth’s citing the widespread use of cash despite Visa’s expensive promotion of mobile NFC payments caught my notice. Payment choice at point of sale is a consumer choice, of course, so long as the merchant accepts the payment of choice. Much has been written about consumer adoption of NFC (or not). But what of merchants. What do they wish for? We know the Starbucks story and that now, Dunkin’ Donuts has launched its own mobile payment application. To that I say big deal. Even Waffle House has its own app, but it doesn’t do payments. But what about small businesses – all several million of them? Will they all want their own app too (and will you want them on your phone)? I digress. Having nothing to do with the Olympics, Celent surveyed 500 small business owners of multiple varieties this summer to explore attitudes on invoicing, payments and the like. We found that checks were the most widely accepted payment method, closely followed by cash. True, a significant number of the businesses surveyed were B2B businesses, but c’mon! Barely a third accepted credit cards. What gives? smb-payments-acceptance-june-12

The survey went on to ask, “If you could be paid the same way each time by every customer –how would you choose to be paid?” Here we go again… checks and cash – dramatically more preferred than the next closest payment type (ACH) by a factor of three!


Why the devotion to antiquated payment methods? In the case of cash (in order of incidence): 1. Less chance of bad funds 2. Less expensive (no interchange) 3. Immediate funds availability In the case of checks, it’s all about the lack of transaction fees, since the chance of bad funds is a real and present danger with checks unless one spends for guarantee services. Sure, there are use cases where Square may be awesome for example, but to the significant majority of U.S. small businesses, neither technology nor electronic payments is all that interesting to them. This seems particularly true among older demographics. For example, in the same survey, only 15% of business owners/managers 65 and older thought tablets were “somewhat or very important to running their business”. In contrast, 45% of owners/managers 40 and younger felt that way. So, while it often appears that we are on a fast-track to mobile payments ubiquity, at least among the millions of small businesses that aren’t yet convinced, it may in fact be a long and winding road. Don’t throw away your leather wallets just yet.

Why Small Business RDC Matters

Celent recently completed the analysis of some small business research among a random sampling of 500+ small business owners with annual revenues up to $2.5 million. The universe of U.S. SMBs excluding those making less than $50k/year is roughly 25 million.


The research underscored the centrality of check payments among small businesses – like it or not. For example, 90% of responding SMBs accepted checks compared to 70% accepting cash, 33% credit cards, 31% debit and 28% PayPal (with large variations depending on type of business). And when asked “If you could be paid the same way each time by every customer –how would you choose to be paid?” Check (38%) and cash (33%) were the two favorites. This will change over time, of course, but for the mid-term, checks will remain commonplace among SMBs.

All these checks are producing a good deal of branch activity. In the same survey, businesses were asked how often they made check deposits and how many checks were in each deposit. The results were logical – the larger the SMB, the larger the average check deposit and the more frequently they deposited. smb-deposit-frequency About two-thirds of all SMBs in the sample had less than five checks per deposit, making them suitable candidates for low-cost remote deposit capture (RDC) solutions. smb-checks-per-deposit Why is small business RDC important? At least two reasons. Approximately 20 million small businesses are accepting checks on a regular basis and depositing them at local branches and ATMs. RDC represents an obvious convenience for these businesses. The second reason is the favorable impact RDC can have on branch traffic and the resulting cost to serve these customers. Using the surveyed deposit frequency shown above, the collective activity amounts to 3.6 billion bank deposits annually. Assuming these deposits were distributed equally among the nation’s 119,000 bank and credit union branches, each branch could see 30,400 fewer deposits annually if SMBs were enrolled in RDC en masse. That averages 117 branch deposits per day, or roughly a single teller per branch based on a teller efficiency of 18 transactions per hour. Larger banks that serve the majority of small businesses would enjoy the bulk of the savings. Financial institutions would do well to leverage RDC’s popularity by offering desktop and mobile RDC freely to small volume depositors, and aggressively selling more capable solutions to the third of SMBs with more substantial check deposit volumes. This needs to happen alongside realistic RDC risk assessments and a corresponding broadening of eligibility requirements and raising of deposit limits. Otherwise, RDC will remain a niche product that under delivers customer needs as well as product revenues.

How Do You PayATrader?

Earlier this week, Payatrader announced launching a card processing service aimed at the UK small businesss across a broad range of trades, including builders, carpet cleaners, locksmiths, pest control, window cleaners, mobile mechanics and decorators. The home service providers and traders market has been underserved by the payments community in the past and is often quoted as an example target market for new payments innovations, so it’s good to see an actual live solution aimed at that market. This market segment was identified by the UK Payments Council as an important user of cheques, and while there is no longer a formal commitment to get rid of cheques in the UK, all efforts to move away from paper-based instruments are welcome. Of course, the competition is heating up – P2P solutions, such as Barclays’ PingIt, can be used in this context. The likes of Square and other US-based players with “dongles” are designed to work with mag-stripe cards and are therefore less suited in the EMV environment, but the corresponding EMV solutions, like iZettle are also coming to the UK. And Celent has had a number of discussions in the market about potential mobile invoicing and payment solutions targetting the traders. Payatrader is a different kind of a card acceptance solution. It aggregates small merchant transactions and enables the merchants to accept cards without monthly fees, one of the barriers for merchants with relatively low volume of transactions. However, monthly fees are not the only barrier – for someone who is used to cash and cheques, suddenly paying per-transaction is a big mental obstacle to overcome. How quickly the traders get the money is another concern – cash is instant, whereas with Payatrader they have to wait on average 10 days to settle. And it’s no secret that customers often get quoted a significant discount for paying in cash. So, while all solutions that can help this market segment migrate away from cash and cheques are welcome, it will be interesting to see how quickly Payatrader can get to a critical mass of merchants and consumers.

A New Player in Small Business Online Banking. What The Intuit/Bottomline Deal Really Means

On March 5th, Bottomline Technologies and Intuit announced an interesting deal. There are two components to the deal:
  • Bottomline acquires Intuit Financial Services commercial banking business for $20 million
  • The two firms have formed a partnership and will work together “through cross promotions, referrals and joint sales efforts to deliver innovative solutions for financial institutions of all sizes.”

Several Celent clients have contacted us to gain a better understanding of this deal and what it means for the market. I interpret this in a very straightforward manner:

  • Bottomline has lacked a small business offering and now they have one. This now allows them to attack an additional segment of the business market. It also allows them to move downstream to work with smaller financial institutions and their small business clients
  • Intuit is a small business powerhouse, and although they sold off their “commercial banking” business I have no doubt they will continue to tackle the small business market. What’s interesting here is that although the assets they sold have been labelled “commercial” and have some commercial capabilities, they are in fact being used by plenty of small businesses. Celent has reviewed Intuit’s solution as a small business solution, based on the size and nature of their current bank customers. It will be interesting to see how Intuit’s consumer online banking solution will evolve in order to serve micro and small businesses. I see Intuit paying extra attention to the small business market moving forward, so even though they sold off some assets this is still a player to watch.

Fiserv and CashEdge Prepare to Step into the Ring

It’s been a really busy week on the M&A front – S1/Fundtech, Intuit/Mobile Money Ventures, and now Fiserv/Cashedge. Yesterday, Fiserv announced that it has agreed to acquire CashEdge. It’s a strategic move on the part of Fiserv and I can think of numerous reasons for the acquisition. Let’s explore a few of the areas:
  • P2P Payments. Fiserv has a ZashPay, CashEdge has Popmoney. Why does Fiserv need two separate solutions? Well, there is lots of activity taking place in the online banking space with regards to P2P. The recent announcement of ClearXchange (a joint venture of Bank of America, Wells Fargo, and JPMorgan Chase) has raised a lot of eyebrows and everyone is wondering whether this is the P2P payments silver bullet. Can a joint ZashPay/Popmoney solution take on the likes of ClearXchange? Should it take on ClearXChange or attempt to be part of it? This is still a murky area as there are lots of unknowns, but I would love to hear your thoughts.
  • Account Aggregation, Online Banking, PFM. There are 3 main account aggregation players – Yodlee, Intuit, and CashEdge. Fiserv’s acquisition of CashEdge now allows them to offer account aggregation and tie it into their Voyager online banking solutions. No doubt this is also a major stab at rival Intuit and their online banking and account aggregation endeavours. CashEdge is also an Intuit partner, and this now opens up doors for Fiserv to step in and attempt to woo Intuit online banking customers. It’s also a stab at Jack Henry, as CashEdge is the aggregation provider for their PFM solution. It could also be a stab at firms like ClairMail, another CashEdge partner. Will Fiserv box out Intuit, Jack Henry, and ClairMail customers with this acquisition? Things could get mighty sticky as competition is clearly heating up.
  • Small Business Payments. This is a fast growing area, and one that is changing rapidly as banks and vendors attempt to simplify the online banking money movement process. Every online banking provider needs to work on this area. For more info, see my small business online banking vendor evaluation report.

This is clearly a strategic and competitive move on Fiserv’s part. I believe it holds a lot of potential, it will all come down to execution and how the joint entity will work with its banking clients and prospects. I’d love to hear your thoughts.

Finovate Spring 2011 Roundup

Last week I headed out to San Francisco for Finovate Spring. Finovate is my favourite conference of the year for a few reasons. I actually attend the demos and am not in meetings the entire time; the demos are a short 7 minutes – more than enough time for an analyst to make a quick judgement; and finally, it is a true showcase of bank innovation. It’s a mix of companies, some are 2 guys in a garage, others are small companies, and a few are established players. The range of solutions on display is interesting, exciting, and thought provoking. This year, Finovate Spring was extended into a 2 day event with 64 companies presenting their wares. The event had a record turnout – I was told about 800 people. Banks are now very well represented at this event, something that was not the case just 2 years ago. Three key themes emerged from the conference: Bill pay is a commodity. The features and use around bill pay are where the innovation and opportunity lie. I was astounded at the number of firms with solutions related to bill pay. These included, Balance,,, BillFloat, ChargeSmart, Doxo, Mitek, paydivvy, and PayNearMe. P2P and other payments are being pitched in an effort to drum up interest. P2P payments, social payments, POS payments, you name it. Lots of want to be disruption here. Interestingly, the P2P payments vendor landscape is still growing with fims like Liqpay. Paypal/Discover demoed a joint solution. Other firms with payments related offerings are BrainTree, Dwolla,and peerTransfer . Small Businesses have online needs that aren’t being met. Startups and other firms have taken note. I recently spoke to American Banker about this trend. Firms in this space include,, Kabbage, Lendio, Wipro, and Xero. Rewards Programs are all the rage. Banks are looking to cut costs, consumers want deals, and merchants want to better target potential customers. These presenting firms believe that this is a win-win combination – Billeo, BankOns, Clovr, and FreeMonee. There were still a fair number of PFM-like demos, but nothing that really grabbed the audience’s attention (or mine). I’m glad that this topic didn’t overwhelm this show as it has in the past. The question is which of the presenting companies did I like? In what’s become an annual tradition, I plan to profile my top 10 in an upcoming Celent report (link to 2010 report). The 2011 report will single out the innovative startups that Celent believes will have an impact on the banking space and/or the consumer market (many of these startups bypass the bank channel and market their products directly to consumers). Here are some of my selection criteria:
  • Realistic business model
  • Innovation and new product development
  • Potential for the solution to be sold by banks
  • Potential for the solution to fill a void in the market

The audience did have their favorites, and were asked for their top picks. The best in show awards went to (in alphabetical order) BancVue, Bankons, Dwolla, Mitek, oFlows, PayNearMe, and Wikinvest.

Stay tuned for the report. In the meantime I invite you all to post your Finovate comments and feedback.

AFP 2010 Roundup

Conference season has concluded. After several weeks on the road, I finally hit the last stop on the fall conference circuit – The AFP Annual Conference. This popular business banking conference took place last week in lovely San Antonio, Texas. The trend of increased attendance figures continues (see my BAI Retail Delivery post here), as the conference halls were loaded with attendees. The exhibit hall did seem a tad smaller than usual, although perhaps that was just due to the shape of the hall. In any case, after several days of good meetings with banks and software vendors, I noted the following themes:
  • Mobile solutions for corporates are becoming mainstream. My colleague Zil and I noted the start of this trend at the recent SIBOS conference in Amsterdam. There were a ton of announcements, and demos were being showcased in the exhibit hall. Announcements were made by PNC, Union Bank, and Citizens Financial Group to name a few. Bank of America Merrill Lynch was also showcasing a mobile demo for its CashPro product. I first wrote a report on corporate mobile banking in 2007, complete with a case study on Wells Fargo’s CEO Mobile. My report was a tad early for the market, and now that things are progressing I will revisit the topic in a 2011 report. Stay tuned!
  • Growing interest in small business online banking solutions. Many of the conversations I had at the AFP were on the topic of small business online banking. The majority of banks still have no clue what differentiates a small business online banking solution from a corporate cash management solution. Luckily, I have addressed this topic with a vendor evaluation of small business online banking solutions. The report was released last week, just in time for the AFP, and provided for lots of questions from banks and vendors. A second report on the subject is forthcoming and should be released by the end of the month.
  • Portal perplexity. To portal or not to portal? Several banks I spoke to are in the middle of trying to determine if they should build a corporate banking portal that would encompass all transaction banking services. This dashboard would provide quick task execution, at a glance info, and be fully customizable. The build versus buy debate was raging, coupled with the difficulty of integrating multiple vendor solutions.
  • The cash management market is still on fire. The number of banks that have sent out RFIs or RFPs is staggering. I am still amazed at how many banks are undertaking decisions here. The fact is however that some of these fires are the same ones we witnessed last year – sales cycles and decision making times are long. Solution replacement growth is still quite strong and I expect it to continue well into 2011.


Those are my quick hits from the conference. I welcome all comments and thoughts. I also encourage those of you who were in attendance to share your experiences!