Small Businesses: Tying People and Banks Together – Human to Human

Mothers, fathers, brothers, sisters, grandparents, uncles, aunts, and cousins are the most important people in our lives.

Guess what else they are? Community members, consumers, small- and medium-sized business (SMB) owners, and employees.

Every month, people come into my home - to take care of the tasks I need help with or wish to delegate. When my dad was alive, he would say "How do you have any money? You have people coming and going all the time, doing the work you should do or know how to do." But that's a family dynamic for another blog!

Recently, my late father's words came to my heart and mind … causing me to think about and take stock of all the SMBs that played a role in my life in the last 365 days.

These folks are the stars of this story.

Insights From My Personal Spending Analysis

What role do SMBs play in my life? What role do payments, lending, and financial institutions play in the lives of SMBs?

These questions prompted me to run a little experiment … I decided to review my expenditures over the last year - focusing on 15 SMBs that directly serviced my family and home (not including restaurants).

The first thing that stood out to me is I hadn't paid many of these 15 SMB owners with a credit card or debit card. Why? Did they not accept debit or credit? In fact, only 33% accepted a credit or debit card digitally and 40% took payment in the form of an old-fashioned card machine with a slide or enter method. However, 80% of these SMBs accepted a check, while 100% accepted cold hard cash. Revolutionary news, right?

The only vendor I paid with a card was my hairstylist, though I still paid her cash half the time.

Nearly every SMB asked to be paid in cash. You may be wondering … what happens if you don't have cash? They accept payment via Venmo^®, check, or card. But plot twist! If you pay via cash, a 3% to 5% discount is deducted from your total.

Shockingly, not one SMB asked me for PayPal or Zelle^®.

I always thought no one could do business or operate a business without using PayPal or Zelle for payments. Or maybe that's the market perception due to million-dollar marketing budgets during things like the Super Bowl, World Series, Tennessee football games, and the PBS Antiques Road Show intermissions.

While perceptions often mirror reality … sometimes they don't.

This is called a pocket of opportunity for financial institutions. As Derik of Autobooks fame likes to expound on, for every $1 you see come in from a business on a deposit from a PayPal transfer, there is around $7 or more sitting outside your financial institution. These are called "nunya deposits" as in "none of your business."

This is where enthusiastic bankers embodying an absolute passion for understanding deposits and payments should deploy an aggregation engine to their digital banking base for consumers and SMBs alike.

Every financial institution should understand their place as a primary or wishful second party in the lives of their customers. No better tool highlights this in real- to near real-time than a good aggregation engine. In fact, Banno™ from Jack Henry™ offers Finicity by Mastercard as our aggregation engine of choice. And frankly, it's pretty darn outstanding.

Does your digital provider offer all your customers the ability to pull in all their financial relationships to the digital dashboard and give you access to that data to understand, follow, and execute?

Evaluating Eric and Val's SMB Expenses

Do my wife and I need an SMB intervention?

Maybe, but we did have a few extraordinary expenses that (I sure hope) won't come up every year. For example:

• Our 11-year-old pool liner gave up the ghost and had to be replaced by Martha and Rusty.
• Our 20-year-old plumbing and bathroom also needed a completely new overhaul in home remodeling.

Let's just say we had a "worse than normal year," which created achecklist of fantastic opportunities for SMBs in our little corner of the world in Knoxville, TN.

We also have standard, ongoing relationships with SMBs who service us on a schedule, such as:

• Jannalin, who washes, trims, pumps, and primes our Italian Greyhound, Gracie, for $980 a year.
• Baltazar keeps me from doing some yard work, like trimming and pulling weeds to the tune of $1,700 a year. Basically, he does all the yard work I hate to do or cannot get to … and if I'm smart, disdain and poor time management are good for us both.
• Steve takes monthly bets via ACH direct pulls on my life insurance.
• For $600 a year, Alvin stops by every three months to spray for bugs around my house.

My point in all this wallet-on-fire madness is every financial institution should value and market to SMBs - because they're truly the glue that binds our country and economy together. SMBs are people serving people to make a living.

I asked my SMBs two more questions in my less-than-scientific experiment:

• Is your main financial relationship with a national, regional, or local community bank or credit union?
  • Answers: 80% are local, 13% are regional, and 7% are national.
• If you had to borrow $10,000 or more, who would you borrow it from?
  • Answers: 53% said their financial institution, 33% said a family member or personal relationship, and 14% said a credit card, loan shark, or some other source.

These stats paint a very different picture than what most of the country sees - given only 7% of new SMBs choose a community bank or credit union as their primary financial relationship.

They also raise the question: Does the lack of card acceptance I observed among SMBs stem from their reliance on community banks and credit unions rather than larger financial institutions?

If 80% of every 15 SMBs considered a bank or credit union as their primary financial relationship, why not market to that segment hard and consistently and provide the products and services they want? I also wonder why 53% of SMBs say they'd look to a financial institution for loans or funding over $10,000 ... What about 100,000? What about $1 million?

Local banks and credit unions must recognize the need to enhance their services in these areas.

By integrating easy acceptance of various payment types into your business banking services, you can tap into significant growth and revenue opportunities while enhancing your accountholder experience. Efficiently serving SMBs is critical to our country, and when done correctly, SMBs can be an amazing extra fuel to the success and community growth of banks and credit unions.

Key takeaways from my (not so) scientific experiment

Community and regional financial institutions still have work to do.

Every household in your community has multiple SMB relationships. If you're not studying their aggregated accounts, debits, and credits you're missing a HUGE chance to learn more about real opportunities in your community.

Understanding these relationships with your SMBs will give you an idea of your primacy in their lives.

SMBs are people - just like us - and they need help, just like we do.

Learn how to better serve the SMB market with digital banking services.

For more information about Jack Henry, visit jackhenry.com.

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