Business strategy

Tearsheet podcast: The role of customer fit in building financial solutions for SMBs

Tearsheet podcast: The role of customer fit in building financial solutions for SMBs

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Bluevine and Tearsheet are hosting a new 4-part podcast series about business resilience, the role of fintechs on small business growth, and how to build financial solutions with small business needs in mind.

In our first episode, we spotlighted Joy M. England, CEO and Founder of Advocates in Action, about supporting small businesses beyond the PPP. In our second episode, our CEO, Eyal Lifshitz, spoke with Guy Goldstein, CEO of NEXT Insurance, about how strategic partnerships between non-traditional financial institutions can lead to better support for small businesses.

Now, in episode three, our Chief Product Officer, Herman Man, discusses the importance of customer-product fit, and how we’re planning for Bluevine’s future in light of what he believes is next for digital-first banking solutions and the fintech ecosystem.

The following excerpts were edited for clarity and originally appeared on Tearsheet.

Herman Man, Bluevine: I’m the chief product officer at Bluevine, and I lead our product and design team here at the company; it’s about envisioning and building the next generation of products for Bluevine’s customers. I got connected with Bluevine’s co-founder and CEO Eyal and was enthralled with the mission, which is to enable a better financial future for small business owners. And that’s a key thing that I’m here to do: to build a purpose-built solution for them.

Herman came into his role as Bluevine’s chief product officer with a lot of experience as a computer engineer, developing products and managing projects at Microsoft, Hearsay, and Xero. Joining Bluevine meant transitioning from software into financial services. 

Herman Man: It was a great transition, and it was obviously a learning experience as well. Having it be regulated obviously handcuffs you, so to speak, in terms of what you can or can’t do. However, it was such an exciting time because at Xero, I started doing more of core fintech when I left. When I was running the Americas product strategy, we were driving what we call the ‘financial web’ at Xero, which was to take Xero data and help lenders lend better using the balance sheet. And so me being exposed to that, and having the opportunity to work on it full time at Bluevine was really exciting. 

Given that I had the background already on a lot of this, it really was around taking the theory and implementing it in practice. And, so that transition was a learning experience, but a pretty natural one, and one that I really craved.

Just as important as his technology and finance background, was Herman’s experience running a small business; it made him fundamentally motivated and equipped to address the problems Bluevine sets out to solve.

Herman Man: My time at Xero basically taught me that small businesses are vastly underserved. No one has their back. And it was such a prominent problem. I talked to small businesses, and they really told me about their struggles. And, and for me, having the ability to work on something that directly impacts them, and can make a difference in their lives is a game-changer. And that’s what I want to do. That’s what gets me excited in the morning when I wake up.

In 2010, I did a startup with some friends. And like all great things, it was about food. Our question was, ‘What are the best chicken wings in Seattle?’, and we couldn’t get an answer. We realized Yelp was about taking you to a destination, but once you’re there, what do you order? So we built an app called Chewsy. Being a startup, we were at least fortunate to have access to capital through investors, but what really stood out for me was the poor banking experience. That has really resonated with me until today. It has really helped me sympathize and empathize with small businesses.

His identity as a small business owner informs Herman’s ability to understand and cater to the pain points of other small business owners when it comes to banking. I asked him, What is it exactly about the banking experience that fails the small business, and how can it be fixed?

Herman Man: I won’t say what bank we were using, but what I can say is that everything was in person; access rights and controls to the bank account were really complicated and frankly, didn’t work. I couldn’t even see the balance that was in the account. It was a bit of a mess, and so the experience there has really stayed with me today. It’s what drives me, and keeps me focused on who our customer is, and the fact that we have to build something compelling for them.

We built a common layer of infrastructure and technology that can be reused as we launch new products, so we don’t have to build everything from scratch all the time. And this has enabled us to build things and launch things faster, and create cohesive experiences across those products. 

So for example, a customer that comes to Bluevine, whether or not they’re a checking account customer, lending customer, or a bill pay customer, they’ll get that same consistent integrated experience once they enter the Bluevine dashboard. 

The small business customer is changing. And with it, so should the products and experiences serving them. Having worked at the intersection of customer and product for some years now, Herman and his team work proactively with the evolving nature of the small business, measuring their success along the way.

Herman Man: With customers, we’ve been able to solicit feedback and hear real-time feedback just by looking at metrics and analytics – one of the core benefits of SaaS. And we’ve been able to really tailor experiences around that. 

Number two, because we’re in fintech, we also get to see a lot of their cash positions. And we know upfront how they’re doing, and what they need from a fintech product perspective, so we’re able to build the products that they will actually use and they actually need. So from that standpoint, I’d say that we’re very close in working with our small businesses. We have a lot of information upfront, and so we’re able to stay close to them.

We look at engagement metrics in terms of number of logins and time in use. We look at churn metrics as well, just to make sure that customers aren’t churning because of poor experiences that we’re building. Those are the key ones that I would say we look at. And then obviously there are other ones that are more infrastructure, product-specific like uptime and whatnot, but those are the key ones. And then the overall I would say is NPS in terms of customer satisfaction.

Being a small business owner is never simple or easy – and definitely not over the past two years. During the pandemic, between Covid mandates to shifts in economic demands, many small businesses took a hit and almost all of them had to change the way they did things. 

Herman Man: If anything, that pandemic reemphasizes what we knew: small businesses don’t have the needed financial support that they so desire and at Bluevine we want to change that. 

Back in 2020, when COVID first hit, the Small Business Administration (SBA) was launching a brand new program to help these small businesses because they’ve been hit by the pandemic. We were able to leverage our risk logic and customized business rules to launch PPP to serve the customers. 

And if you recall, in the beginning, the SBA rules were constantly in flux. And it’s because of this platform and the way that we programmed it that we were able to react so quickly and serve our small businesses. 

And with that, I’m really proud to say that we funded 8.9 billion in loans serving 300,000 small businesses, with an average loan size of just north of 24,000, which truly are the micro-small businesses. And what’s even more important, in my opinion, is that we really serve the minority-owned small businesses. We’re really proud of that accomplishment. 

With huge inflows of both market funding and new players and acquisitions this past year, it’s a safe bet that 2022 will be a major year for fintechs. While the pandemic held back most things around the world, it did wonders as a catalyst for technological advancement and the shift to digital.

Herman Man: I recently read something from Benedict Evans, where he talks about 2022 being a great rebranding. It was an interesting perspective. He talked a lot about crypto now being called Web3, and AR/VR now being called the Metaverse. And while there is that rebranding, there’s also a larger scope in terms of what Web3 is and what Metaverse is. As the technology matures, it’ll be interesting to see how it actually gets adopted. 

When mobile phones first came out, we knew they were powerful, but no one ever envisioned that they’d be what they are today, which is the computing power of a PC in a small little device, and being tethered to us all the time. When Bitcoin first came out, people thought of it as a currency but the reality is that it is a speculative asset. So as this matures another year, which will be huge around Web3 and Metaverse, it’ll be interesting just to see what happens over that in terms of its adoption and usage.

One of the greatest takeaways from the pandemic has been the desire and need for contactless payments and digital-first banking solutions – which definitely benefited fintechs. Looking into 2022, what types of innovations can we expect from the fintech market toward better serving customers? 

Herman Man: I think there are going to be four. One is really focused on sending and receiving payments digitally. Checks are still a big part of how small businesses pay one another today – around 40% of B2B transactions use checks. And so I think there’s still a huge opportunity to simplify the sending and receiving of payments digitally. And that goes from onboarding all the way through to removing friction, while sending and receiving payments. 

The second one, I would say, is improved credit access. I listened to your podcast with Rania Succar, and she had mentioned 60% of small businesses don’t have necessary access to capital. And my time at Xero said the exact same thing; it was the number one thing that small businesses are worried about. And so the combination of technology and machine learning to provide credit just in time will be something that I think will be more prominent. 

Then the third one, I would say, is the consolidation of banking with other business services. We’ve talked a lot about embedded finance, where finance is embedded in non-financial apps, but I actually think that there’s an opportunity for the other way around. We’re seeing solutions about embedded payroll being launched with different solutions, and I think with fintech and banking there’s an opportunity to put that together – Gusto and Check are playing in this space today.

And then the fourth one, I’d say, is the nascency of crypto. It’s not quite mainstream, but there are more players playing. If you look at the stats, there was 26 billion in 2021 for funding, compared to 4.5 billion, which is just close to 500% over 2020 in terms of investment. I think there are going to be a lot of investments there as well.

As challenger banks and digital-first offerings become more prevalent, they are bound to impact the financial services landscape. Fintechs and incumbent financial institutions will likely work closer together. 

Herman Man: It’ll be driven by customer demand, and the action will be through partnerships and acquisitions. As customers adopt more traditional and fintech solutions alike, they’ll just naturally have a desire to have them be integrated together and have them play nice together. For example, today, fintechs aren’t a part of the Zelle network. And as customers adopt more of this, there’s going to be a push to change that. I also think that part of this will happen through the consolidation of players, as well.

While the pandemic is still waxing and waning, the funding market is definitely on the rise, with about $90 billion coming into fintech in 2021. Given this drastic growth over such a short period, what challenges can fintechs expect scaling their businesses this coming year?

Herman Man: It’s a really good question. I think the biggest challenge here will be regulation and regulatory pressures. We’re seeing the FTC investigate Big Tech, like most recently Amazon and AWS. They’ve investigated Meta in previous acquisitions and future acquisitions. And I believe that will extend across fintech as well. The previous OCC nomination of Saule Omarova, which has since been rescinded, signaled a strong desire by the administration for more control and regulation.

Despite expected changes in regulation, today’s fintech ecosystem is vibrant, and much of that is thanks to being able to deeply reimagine and improve the banking experience. Fintechs have gotten some important things right when it comes to small businesses, improving upon the ways banks traditionally treated SMBs. 

Herman Man: If you look at the way that banks have worked previously, as small businesses go into the bank, they’d try to size them up: Are you a retail customer? Are you a commercial customer? And the reality is that they’re neither of these. Small businesses are on their own. There are 30 million of these small businesses and they create two thirds of the jobs in the US economy, yet they don’t have a solution that’s built for them. 

What fintechs have done right is understanding who their customer is, and building for them. At Bluevine, we realized that banking was just not something that legacy players focused on for the small businesses, so we built that. Another one is Chime, with consumer banking. They really target the underserved segment of $100,000 and less in revenue, and they focused on things like helping them get paid two days faster, which has since been copied by others, but they really focused on that experience and made sure that they would delight those customers. So that’s number one — really understanding their target segment and building for them. 

The other is taking the complexity out of banking. We make things like self-service operation very possible. You don’t have to call in to change your password on your debit card, or to lock it, you could do it completely online. We’ve also made it simple for them to understand the very fundamental thing, which is their cash position – they can easily see money in and money out. So we’ve made the experience tailored to what a small business is, and what their knowledge of banking is, so that it’s very simple for them to manage and efficient to use. 

Despite the growth of the fintech ecosystem, much of the banking still happens at incumbent banks, who are the obvious competitors for fintechs like Bluevine. But at a time when customers get personalized products and services at their fingertips, fintechs are also competing with services like Amazon.

Herman Man: In terms of inspiration, we look at different companies that have done a great job in the consumer space around creating delightful experiences. We don’t view ourselves as an enterprise company trying to build software for small businesses. We ask ourselves: How do you create an experience that is like Google, or like Airbnb? So that the consumers can be just enthralled and excited to go use and love the app.

Understanding the target customer and then using this data to eliminate friction points is definitely the way forward. But there’s still work around providing a perfect banking experience, especially as these fintechs scale up.

Herman Man: One thing that I would say around the opportunity is to make sure that we’re empathetic and sympathetic to these customers that we serve, no matter what the circumstances.

Sometimes, as you scale and as you do things that haven’t been done before, you can run into issues like fraud. And as fintechs, we may take action to curb some of the bad actors or bad behavior on the platform, and we have to remember that we’re going to have some false positives there, and sometimes the good actors or the good customers are negatively impacted. We have to think beyond just numbers – there are human beings and small businesses there at the end of the day that we have to attend to.

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