How can data acquisition from Embedded Banking improve SMB relationships for financial institutions?

What is the current state of FI and SMB relationship? 

Financial institutions (FIs) across North America are missing the mark with their SMB customers in terms of the solutions that they are offering. In a recent report executed by Bredin, it is noted that 17% of small businesses were very likely to change banks in the next 12 months, whilst for mid-sized businesses this was 21%.  

Keith Riddle's piece in the Credit Union Times highlighted that traditional financial institutions and credit unions that continue to adopt a ‘one-size-fits-all’ approach to how they serve their customers are nearing extinction. Small and medium-sized businesses require solutions that allow them to manage their critical financial workflows, including invoice collection and payments, supplier payments, and connecting all operating accounts, while automating data integration with their accounting platform and providing a holistic view of a real-time cashflow position – preferably all from a unified digital experience. 

This is backed by a recent Mastercard study, where they reiterated the desire of SMBs to leverage a unified experience for monitoring the financial aspects of their business, with 85% stating “I need a consolidated place to check in on the financial health of my business” (NAM Research and Insights), with a recent PYMNTS.com study reflecting the demand for purpose-built digital solutions for SMBs, with “41% expressing interest in using banking services from a digital services provider”. 

How can an Embedded Banking strategy improve this relationship? 

For financial institutions  to regain their position as the ‘front door’ or ‘go-to’ digital services platform for SMBs to manage their critical business functions they should consider implementing an embedded banking solution.  If financial institutions fail to act, the SMBs will secure the digital solutions they seek from non-bank providers.   

In many other blog posts, we’ve discussed what embedded banking is and what this means for FIs in the race to win back their SMB customers from fintechs and other market challengers. However, we want to bring attention to another benefit of utilizing an embedded banking strategy, and that is the acquisition of essential and insightful data about SMBs that can help FIs  to serve them better. Acquiring such data can even open cross-selling opportunities, which have the potential to be extremely beneficial to FIs  in terms of revenue. 

Data and Embedded Banking: The Opportunities 

The real value of an Embedded Banking strategy for financial institutions lies in the ability to acquire access to data from their SMB customers. 

With this, banks can gain insights into how SMBs manage their business financials in real-time and understand what their financing needs are or what they are likely to be. The latter is of great interest to the FI as this can lead to identifying lending and cross-selling opportunities that can turn your Embedded Banking strategy into a revenue generator.  

In fact, the Mastercard study indicated “74% of SMBs would share business performance data with financial institutions if it meant a decreased reliance on credit scores for loans.”  Examples of business performance data include access to accounts receivable and payable data, information related to financial institution operating accounts, and data related to the specific SMB that could help to form a unique debtor profile for FIs to consider as part of their underwriting processes.  

Moving beyond the cross-sell opportunities that drive revenue for FIs, there is a significant upside in leveraging various data sources to provide consultative business services to SMBs.  SMBs are seeking a relationship with FIs extending beyond individual product components.  In fact, “86% wish they could make better use of [their] business’ financial data to make informed decisions”.   

FIs are in an enviable and unique position to be the trusted business source for SMBs IF they can enable SMBs to access financial management workflows via digital services that are enhanced by Embedded Banking, deliver operational efficiency, and provide valuable insights to them that allows SMBs to carve a sustainable path to growth and success for themselves.  

Data and Embedded Banking: Saving the Relationship 

This FI/SMB relationship, which is entirely notional for most, is already vastly different in than the state of this relationship now. Perhaps it is time to implement an Embedded Banking and comprehensive customer/member engagement strategy to better understand and serve your SMB customer segment.  

Let's Connect at VenCent 2023

• Visit us at Stand 17 - feel free to drop by our stand and meet with Keith at the event. Alternatively, you can pre-book a meeting below
• Main stage - BaaS case study panel - Tuesday, August 15th - 15:00pm - Keith Riddle (BankiFi) and Nigel Prince (Axiom Bank)