According to ABS data, there are some 2.3 million small businesses in Australia which accounts for 97% of all businesses.
These small businesses employ over 5 million people, or 42% of the private workforce. They also contribute $483 billion to GDP, roughly 33% of Australia’s GDP overall.
Small- and medium-sized businesses (SMBs) are the proverbial “backbone of the economy.” However, they are currently facing mounting economic challenges with high inflation, increasing interest rates and commercial rents, a super tight labour market, and ongoing global supply chain shortages.
Additionally, a recent report by CreditorWatch expresses that the proportion of businesses with payments in arrears by 60 days or more had increased in almost every industry sector.
Against this background, financial resilience is vital, and SMBs need the best financial support they can get.
Small business banking is now a battleground
Most banks have not kept up with small business owners' expectations for a slick, mobile-optimised business banking app. As a result, banks are missing out on opportunities to onboard new customers and cross-sell higher margin products to existing customers.
Moreover, there is a market gap open to fintech challengers because those underserved SMB customers represent a lucrative market opportunity.
In today’s digital economy, small business owners have more invoicing and payment apps to choose from than ever before. In Australia, for example, players such as Parpera and Thriday have recently launched. Whereas, more established players like Archa, Cape, DiviPay, Hnry and Paytron to name a few, continue to expand their products and services.
This is a competitive land grab by challengers who prioritise customer experience (CX) that is delivered digitally via a full-featured app.
The challengers’ goal is to provide an all-in-one financial management platform for businesses by offering digital banking, financial admin (such as quotes, invoices, payments, receipt management), bookkeeping (for example, automatic expense categorisation and reconciliation), plus accounting statements and tax help like GST sub-accounts. Working with a Banking-as-a-Service (BaaS) provider, challengers can offer bank accounts, removing the need for that small business owner to continue to engage or transact with their current bank.
More than this, the apps offer data-driven algorithms that monitor business performance, derive cash flow insights, and embed cross-selling opportunities like loans. With the increasing maturity and expansion of open banking under the Consumer Data Right, fintechs will soon be offering just-in-time, customised loans from third party non-bank lenders.
Because these challengers solve genuine problems for SMBs and deliver a great digital experience, their apps build a sticky relationship, as small business owners save time and money getting more done in one place. And that place is not the banking channel!
How should banks respond to help SME's and regain ground?
Big banks have been caught between a rock (the retail bank) and a hard place (the corporate & institutional bank) when trying to service business banking customers, particularly sole traders, gig workers, micro- and small businesses.
As a customer segment, SMBs offer huge potential. But they are an incredibly diverse group. Beyond offering a transactional bank account, this diversity presents a challenge for banks to adopt a customer-centric approach, especially after years of rationalising branch networks and product offerings.
Additionally, banks are more likely to be focused on benchmarking market share versus other banks, rather than perceiving the fintech threat.
As a result, many banks have not prioritised small business banking - forsaking the vast potential value - and leaving many small business owners feeling forgotten.
To build, to buy, or BankiFi? That is the question!
At BankiFi, we collaborate and partner with banks, to enable innovation without incurring an expensive transformation.
Banks plug into our API-first architecture to embed a suite of value-added services that address the unique needs of their SMB portfolio. For example, the BankiFi open cash management platform allows the small business customer to have a holistic and real-time view of their finances accessed within the existing online banking channel.
In particular, BankiFi makes getting paid easier, with digital workflows providing a simple way to invoice and collect payments faster, automate data integration with accounting systems and provide comprehensive insights to optimise working capital. In fact, through our existing bank partnerships in the UK, we’ve already helped about half a million SMBs to get paid faster.
The big challenge in front of the fintechs is customer acquisition. Whilst fintechs may be revolutionising technology, they are building trust from scratch whereas banks already have relationships to build on.
Moving into the second half of 2022, I believe banks who react fastest to the real needs of SMBs will reap huge rewards. By white-labelling the BankiFi platform, banks can regain the upper hand on the battleground.
Working with BankiFi, banks can seize the opportunity for competitive advantage and improved profitability – and Australia’s small businesses can access value-added services – all within the trusted and secure banking channel.
If you are a bank interested to know more, reach out using the contact form on the BankiFi website.
Lloyd Parata brings more than 25-years experience selling enterprise software solutions into the Financial Services sector. Lloyd’s focus is helping clients with their digital transformation journey to improve operational efficiency, drive revenue growth and improve the customer experience.