Why are small businesses so underserved when it comes to their banking needs? Herman Man, our Chief Product Officer, recently joined Somrat Niyogi, General Manager & Head of Business Development at Gusto, on The SMB Tech Innovators Podcast to discuss banking solutions and more.
What’s the criteria for being considered a small business?
The term “small business” has been generalized by the banking industry to categorize companies by revenue. But that’s not accurate. A small retail business and small service provider business are entirely different entities that need specific banking and financial services. Attempting to fit them both into the same box is doing them a disservice.
“Small businesses are vastly, vastly underserved. It’s true across banking software and so many other industries out there,” says Herman Man. Bluevine is servicing that space by offering business checking and lending to firms that big banks treat as “too small.” Since 2008, Bluevine has been working to become a financial hub for small businesses.
Two good examples of underserved small businesses, according to Mr. Man, are the contractor who does your kitchen remodel and the architect who partnered with him to get it done. Many larger banks don’t take an interest in businesses like that until their revenue tops $5 million, but how do they get there without a solid banking and lending partner? That’s a niche Bluevine can fill.
Why banking solutions are easy to offer but difficult to implement
For far too long, small businesses have struggled to access traditional banking services, restricting them in their efforts to scale. Fintechs and BaaS (banking as a service) companies have attempted to step up and fill the void, but getting it right is more difficult than it seems. Small businesses simply don’t have the bandwidth to handle it on their own.
Regulatory and compliance requirements seem to be the stumbling blocks for development in the BaaS space. This can lead to unfinished products and platforms that only offer partial banking solutions. Online checking accounts are a prime example. The deposit account might be there, but, outside of Bluevine, the ability to do wire transfers and move money may not be available.
Another issue is account access for accounting purposes. “It’s mind-boggling that accountants don’t have a banking solution that makes them more efficient,” says Herman Man. Bluevine account holders can grant authorizations to third parties without sharing their own username and password. They can also set up sub-accounts to align with taxes and financial reporting.
“I think it’s definitely easier to offer banking products today, but it’s as hard as it was yesterday to actually implement them,” commentsMr. Man in the podcast. Many big banks have the resources, but they don’t understand the small business space. Therein lies the problem.
What’s embedded lending?
A good example of embedded lending is the “Buy Now, Pay Later” programs offered by ecommerce merchants. These companies appear to be owning the process of getting funding for their customers, but are they really? There are several steps to this, including approval, fraud prevention, and collections when a customer defaults.
Merchants often outsource these services to a third party but brand it as their own. That can create a problem for them because the approval and collection processes are taken out of their hands. In those scenarios, promises made as part of a promotion or even in the core messaging of the company might not be possible to keep.
Embedded lending is when one entity owns the entire process. That’s difficult to do with small business financing. Lenders need an immense amount of data to do their job effectively, including a way to assess risk. Some ways lenders do that is by looking at business credit scores and financial data.
By offering a business checking account in addition to a business line of credit, Bluevine is able to provide embedded lending because financial data is readily available for Business Checking customers. As Herman Man states, we also understand that “data collected during a boom is different from data collected during a bust.”
How to use customer segmentation to develop a product roadmap
As the Chief Product Officer at Bluevine and a former VP of Products and Partnerships at Xero, Herman Man’s use of customer segmentation to develop a product roadmap makes for a good case study in how small businesses can scale. The path to success for Bluevine has been all about prioritizing development and launches from a product perspective.
Segmentation starts with understanding your customers and matching patterns. Small businesses need great money movement. How do they accomplish that? The similarities between firms could be in the way they process payments, their user behavior on the website, or in their churn rates. These are all variables used to segment clients.
Spending time with customers might be the most valuable tool of them all. Speaking to churned clients can reveal unseen flaws. It’s also good to assess competitor developments and industry trends. Combine all that data together and then test new features on specific customer segments to measure response. Successful tests can be ramped up to full rollouts.
The importance of customer experience
As Herman Man says, “In 2023, due to the macro environment, I think anyone who doesn’t own a cohesive customer experience end-to-end will end up falling behind.” The team at Bluevine works hard to make the business banking experience unified between products and platforms––whether a business is paying a bill from the online dashboard or depositing a check through the mobile app.
By owning every aspect of the customer journey from application to onboarding to ongoing support, we’re staying true to our mission of providing streamlined, end-to-end banking solutions for small businesses who deserve more than what they’ve been getting.