“If you fail, fail fast, and hopefully, fail a lot.” -Renee Newman
Banking is often a huge hassle for small business owners. They simultaneously dread interacting with their banks while dreading switching to a new bank.
And as the old saying goes, “There’s got to be a better way!”
Good news: There is a new and better way to handle small business banking. James Robert Lay, author of Banking on Digital Growth and founder of the Digital Growth Institute, hosted a fireside chat on this topic with three big names in the fintech space: Renee Newman, Derik Sutton, and Corey LeBlanc.
Renee Newman is an industry advisory board member at Nymbus, a leading provider of banking tech solutions. Derik Sutton is VP of marketing at Autobooks, which empowers small businesses to find better banking solutions. Corey LeBlanc is a tech innovator who co-founded Locality Bank, a digital-first community bank.
The Rise of Fintech for Small Businesses
James Robert, who has a great passion for this topic, has been carefully tracking the rise in fintech transformation in small businesses.
"I predicted all the way back in episode number 55, which was my top 12 growth trends for banks and credit unions in 2021, that the SMB market would be a tremendous growth opportunity for financial brands to capture over the next 36 months."
Since then, marketplace trends have shown that this prediction is coming true. Small businesses present an ever-growing market opportunity for financial brands to capture, as there were half a million new businesses started in January of 2021 alone according to a study from Salesforce.
James Robert predicts a continuation of this trend as barriers continue to be broken down in fintech. Of course, this creates a new dilemma where the competition for customers becomes much more intense and this continues to reshape the marketplace.
There's a new complexity of factors involved for the average small business owner.
Who do they choose? Where do they turn for help? Who should they trust?
Will they turn to you, your financial brand, your bank, your credit union, your fintech startup?
Or will it be someone else like a Square, PayPal, or even QuickBooks?
Finding Help and Hope Through the Financial Experience
Derik Sutton worked with an educational company that helps children with reading disorders, traveling around to people’s homes and helping kids form plans for reading success.
He shared that the pandemic broke this company’s traditional approach to business because they couldn’t visit homes the same way they’d always done.
They had to find new ways to be resilient and overcome business challenges.
Derik explained, "The way that they adapted was they started virtual training and virtual learning sessions, but then their payment mechanism broke ... And so their cash flow cycle started to extend, and the great thing is their bank happened to be partnered with us and was able to deploy a digital receivables solution. So now the business was able to quickly pivot, maintain their cash flow, and get paid by the parents."
The importance of resilience in a situation like this: seeing a bigger, better, and brighter future rather than being held back by a challenge.
On the contrast, Corey LeBlanc shared a financial frustration leading to change for a colleague who runs a startup tech company in New Orleans called Rent Check.
"What they do is they basically settle between the renter and the rentee this initial payment to say, okay, at the end of my lease I'm going to go back and say, hey, the house was as it was. Well if the renter doesn't agree with the rentee, you have a digital timestamp of it."
During the pre-revenue period, Corey says, a company might need a fractional CFO to help manage the business. It’s difficult to manage Stripe, Square, and other payment processing options, so there’s an urgent need for fintech assistance. It’s a pain point for many small and growing businesses.
Stories like these demonstrate that small businesses are looking for two things: help and hope.
Not only do they need help handling their financial business, they need the guidance to get it done in a way that’s fiscally and strategically prudent.
The Human Side of Fintech for Small Businesses
Renee Newman has seen similar trends and patterns for small businesses when when looking back on the COVID experience over the past couple of years.
For Renee, it's all about the human connection. "For financial brands the key is to take the role of a trusted advisor. While banks have traditionally taken this role, it’s become so challenging to manage the technology on the back end, the customer experience is suffering."
When we find ways to automate processes and make the entire experience easier for everyone, "we found that we could magnify those moments that matter."
This humanizes the digital experience.
Corey shared that’s the entire idea behind his company, Locality Bank.
Although they could have simply built a fintech company off another bank’s charter, they wanted to do something bigger. They wanted to solve problems in the communities they serve.
"We started to look at the communities and the businesses that operate out of there. Where are the difficulties for them? And that's the piece that's missing is we talk about these technologies and we talk about personalization, but we don't talk about personal."
There is a need for a digital guide or steward that helps people understand how to get from point A to point B. And small business owners can easily become overwhelmed with trying to manage financial complexity in, as James Robert puts it, "death by 1,000 cuts."
Meeting Competitive Threats in Fintech
Not all financial institutions have been prepared for the fundamental shift in doing business that has happened over the past decade or even just the past few years. Money and financial transactions are viewed differently now, and expectations are changing too.
Derik shsared that he hasn't met a business yet that doesn't need to accept money.
That means adaptation is a must for survival.
“It's like water going to the lowest point,” Derik says. “Businesses are going to go find a way to get paid.” He’s seen accelerations in account creation services, plus business productivity and services like Shopify and Wave.
Derik says today’s fintech businesses, and many small businesses in general, are encountering what Clayton Christensen would call an innovator's dilemma. It means they’re unlocking non-consumption to address consumption issues.
Or, to put it another way, they’re finding out that even businesses that otherwise do everything “right” can fail if they don’t embrace the concept of disruptive innovation.
Disruptive innovation shakes everything up and makes people question the very foundation of commonly-accepted principles.
So how can companies address fierce competition while maintaining the human side of their business?
Renee says that a hybrid approach is the sweet spot, and points to statistics that show fintech companies do so much better when they have high client satisfaction.
Furthermore, Corey relates this to a small business owner he knows who runs a tattoo shop. It’s an extremely successful business, but the owner runs it in a bit of an archaic way. He accepts credit cards and recently started using Square, but that’s the limit of his technological innovation.
Knowing this, Corey asked him what he thinks about the word “fintech.” The tattoo shop owner hadn’t heard of the word.
When Corey dug deeper and asked how he handles business, he said, "Well I kind of just use Square." Then he added, "I started using them for my lending."
Then, as he started thinking more about how he’s handled loans, he mentioned, "I can go get a loan. This amount of money, this capital for me to run my business, same-day. And then I pay it back and when I don't need anymore I still have everything, all those receivables, all that information in there and I can kind of run my business."
Corey was blown away to realize this relatively old-fashioned business owner is almost completely running on Square, which kills the idea that “traditional” people are sticking with traditional institutions like hometown banks. Some of them are just struggling, figuring out how to run their companies with very little support or guidance.
“These businesses are having to figure out how to run their companies,” Corey says, “and they want that personal element, however what's most important is efficiency. It's running that business day to day.”
Digital services have an undeserved reputation for being impersonal when plenty of people don’t see them that way. “Oftentimes, digital gets a bit of a bad rap because the customer actually thinks that's great personal service,” Derik says.
Answering the Question: How Do We Handle Cash Flow?
Traditional banks have always been so focused on in-person services like cashing checks and taking deposits. That formed a natural sense of connectedness with their customers.
“When payments went digital all that got broken and those conversations are now taken out of the branch, those connections are no longer made,” Derik says. “The winners in that are those that are leading with the digital receivables.” Of course, that takes an adjustment in thinking and doing business.
Derik continues, “When you look at even full merchant service penetration rates inside organizations, it's not that great. And so I think we have to get back to the number one priority of a business is cash flow. As an organization how can we get in front of cash flow?”
Cash flow is the heart and soul of most small businesses. Renee points out that in a way, QuickBooks knows her better than anyone else. It understands what her operations look like and it can even make offers based on how she does business. She’s not necessarily getting that from a traditional banking relationship.
“I think for most traditional financial brands,” Renee says, “what we've done with small business is take all of our commercial products and services and solutions, and made them ‘commercial light.’ So that even goes to policies, procedures, processes, pricing, you name it. We were trying to fit small business in a box and that doesn't really work.”
Renee calls the recent disruptions in the financial marketplace “a beautiful disruption” that sets the stage for an “aha moment” for financial brands. It’s time to start asking questions about what can be done differently, who can help do it, and why we’re still making so many of the same decisions over and over again.
“I watched a focus group playback and this was a great moment where someone said, ‘Why do you ask me on a check renewal my last check? Don't you have that information?’” This shows that the bank has been hesitant to use its data to help its customers.
When a customer is saying, “Please help me!” financial brands should be listening. When they need something, a fintech company can step in to help, so what about a hometown bank? Can they possibly step in to save this relationship before someone else does?
Renee also explains that this is an opportunity to infuse memorable moments into a customer relationship. Fintech companies and financial brands can bond with their customers over the shared experience of solving a pesky problem together.
Maximizing Growth Capacity for Small Businesses
A small business owner often has to keep their head down, focused on the day-to-day details so it’s hard to take time to look up, look out, and think about the future. This creates missed opportunities.
“We were just having a conversation with the regulators the other day and then we had this discussion about the use of data and how much data we could potentially have, and is that a risk? And I said no, absolutely not. We're taking the same amount of data that any other financial institution would if they just go apply for a loan. We're just making that data actionable, which is very different," Corey says.
Most banks gather data, and they might go through a process of implementing data hygiene, and they may even present the data to their executive board to show some exciting new information. But then what? Are they maximizing the use of this data?
Corey says the challenge is to make the data actionable and bring it back to something helpful for the customer. Maybe it’s an insightful dashboard for the customer or banker that enriches the relationship and extends the customer journey, for example. Maybe it’s something that makes managing cash flow easier, helping business owners understand the ebbs and flows of their business.
Is there also an element of fear and human nature that strikes at the heart of the business partnership?
Fear of getting the loan or fear of even applying for the loan?
So what's the opportunity for financial brands and fintech to collaborate to eliminate those fears?
Derik says, “I think it comes down to financial institutions making a decision around what they want to be really good at, what they want to own, and what they want to partner on. And I think the best organizations I've seen say, hey, we expect this vendor to come in and own this portion of our business.”
This means the organization allows a fintech company to grasp a portion of what they do, but they continue to retain control of their customers and data. It’s a model that may well be the future of financial institutions.
“Community banks and banks in general are a bit stretched with having to kind of be all things to all people,” Derik says, “and I think we're probably going to move into a world where it's a bit more vertical and we're going to rely upon fintech vendors to help us service those vertical niches that we care most about.”
Accepting the Risk of Failure in Fintech
“Failure is the fertile seed from which new growth springs anew,” James Robert says, “I think the older that we get, we get conditioned to fear failure. Because if you think about it, as a kindergartner, as a first-grader, as a second-grader, we're still learning, we're still exploring and the future is bright. But then we go through and we get a bad grade on a test and then you're like, oh, there's something wrong.”
Renee says we shouldn’t be so afraid of failure. “I have a mantra: Progress, not perfection. I mean I'm one of those, I strive to be perfect. And I think adopting an agile growth mindset is really important. Consider yourself a scientist, test a theory, test a hypothesis. If you fail, fail fast. And hopefully, fail a lot.”
Failure is part of the learning process and perfection is the enemy of success. Sometimes it’s important to do a test, accept that it might fail, and learn from the failure.
James Robert adds, “Progress is greater than perfection because as you look ahead towards the future, it is so easy to get overwhelmed at all of these things that we have to do. It's the impossible mountain that we have to climb. And when you look at that mountain, you begin to question, what's the point? But when you look behind from where you've come from, that builds your courage, that builds your momentum, that builds your confidence to continue to commit.”
Derik encourages financial companies to experiment. “Have your cold shower moment with your employees and your board and say, hey, would you go to our website and tell me where I can find this solution? Just give them that little challenge. Navigate down on the menu, you see this whole portfolio of products and services and say, put yourself in the small business owner’s shoes, the consumer’s shoes. I want you to go sign up for this service, open an account with us, use this product or service.”
What happens when they try to do this? What challenges do they face? What “aha moments” do they experience as they struggle to do what they’re asking their customers to do, day after day?
Derik says not to stop there. Shut off their access to your core products and make them use the mobile banking app. Make them use the small business side, sign up for a product, use the service, or even go into the lobby and see what happens when they try to get help with the mobile app. Now what happens? What worked? What’s broken?
This is a cultural mountain to climb for a company’s traditional top execs, and perhaps others across the company. Maybe they honestly don’t realize or understand the challenges their customers face.
Derik emphasizes how much there is to learn about customer pain points during a process like this. Plus, it will instantly highlight the gaps a vendor could fill quickly and solve the problems that are obvious from the experiment. And as a bonus, it will show that there are some legacy systems and products that are almost pointless to continue maintaining when they’ve become irrelevant to the modern process.
The Big Takeaways from Fintech Transitions
Corey says one of his top-of-mind concepts is “how easy it is to go back to comfortable.” Even after building something new from scratch, there’s a temptation to go back to what’s easy. When a roadblock arises, it might be easiest to just go back to something we’ve done in the past and assume things will turn out okay.
Companies must resist the urge to become lax and stop challenging themselves. Make sure there’s always a forward momentum, charging ahead toward the things that are difficult and maybe even a little scary. “Everybody who joined our team literally jumped off a cliff into this opportunity,” Corey says. “So it’s important not to let this fresh opportunity become stale.”
Renee says it’s important to keep your focus on your “North Star” that guides you toward something new. She says, “In my experience, it's, ‘Put the client in the center of everything that we do.’” Stop rebuilding the same widget over and over again, and instead reimagine what things would look like if we set the widget aside and pursued something completely new.
Derik builds on this idea, saying he sees a commonly-held belief that he views as completely mistaken. People want to connect with people, yes, but “actually, people just want stuff to work. And they want to know that it's built for them and it's going to solve their problem.” He encourages financial brands to embrace the transactional nature of what they do and stop minimizing the value of interactions simply because they’re transactional.
Renee says, “My 13-year-old entrepreneur said to me recently - he's a Bitcoin miner and started his own business - ‘I will never need a bank.’ Whoa, it didn't make me feel very good.” Renee started asking questions and realized this young entrepreneur is quite savvy and has figured out that he’s empowered enough to run a company while feeling this way. Big companies can learn something from this!
So what kind of small thing can people and companies do to advance the mission of fintech?
Corey answers, “I think it is accountability. It's creating that accountability inside the organization so that they understand that ownership of a department isn't just ownership. It's not a possessional thing. It's accountability to that thing.”
Renee says for her, it’s about thinking more like a brand and less like a bank. Stop thinking a bank does things a certain way, and start having uncomfortable conversations that lead to a new kind of success.
Derik relates a phrase they use at Autobook: Proximity creates empathy. He explains, “So go talk to your business customers, go walk in their shoes, go find out their challenges. Don't be overly prescriptive. It doesn't have to be a scripted conversation, it could be very casual. And just ask them about their business. How do you get paid? What are your growth needs? Reach out then and say to your employees and staff and start to train them on what the competition really looks like.”
Renee agrees, emphasizing the need for everyone at all levels of a company to keep an open mind and face their fears. “Growth mindset. Be open to change. Be open and willing to listen. We can do hard things.”
For more information about the innovators interviewed here and their powerful Fintech solutions, feel free to contact them on LinkedIn or directly through their websites using the following links: Renee Newman at Nymbus, Derik Sutton at Autobooks, and Corey LeBlanc at Locality Bank.
This article was originally published on December 3, 2021. All content © 2023 by Digital Growth Institute and may not be reproduced by any means without permission.