Banks and small businesses have always had an important relationship with one another. For small business owners, their primary banking provider is an essential component in getting their business set up and having somewhere to receive payments. And for banks, small business customers represent an enormous opportunity: about $150 million in annual revenue in the US alone.
Nevertheless, recent research by McKinsey has found that the relationship can go much further.
Banks will be a one-stop shop for all kinds of products and services
McKinsey’s report found that 50% of SMEs would prefer to get all of their commercial enablement tools from one provider. The researchers also suggest that banks have the power to step into this role.
“One of the key takeaways,” the authors write, “was that banks should consider becoming a one-stop shop for all kinds of products and services valued by small and medium-size enterprises… offering commercial enablement solutions such as payroll, accounting, website hosting and design, and marketing and analytics.”
In some ways, this is not a new concept for banks. A number of banks already offer a few digital tools designed for new and growing small businesses. For example, NatWest’s mobile business bank account Mettle is designed specifically for sole traders and companies with fewer than two owners, and its app allows small business owners to send, track and match invoice payments from their phone.
Similarly, Tide’s business account plans also include an invoice generator, accounting integrations and support with trademark filing and legal disputes.
Revolut is playing a similar game, though arguably at a higher intensity. Alongside their business bank accounts, they offer online and in-person payment systems, expense management, and smart invoicing. All those small additions create a big shortcut for a company of 5-10 people that needs to get up and running.
All these examples might be the first green shoots of what McKinsey suggests could be the banking industry’s next small business growth strategy.
Why banks are ideally placed to offer commercial enablement tools
Everyone who wants to be a business owner will need to set up a business bank account. It’s an inevitable stop on the mountain climb. If they’re going to pause there anyway to pick up an account – and potentially some financing and guidance – why can’t they pick up the rest of the tools they need to reach the summit? Banks will be saving them a lot of difficulty, and banks stand to win a lot of loyalty in the process.
It’s not a diversion from the bank’s current trajectory, either. Banks have a long history of supporting small businesses through all kinds of initiatives – from business accelerator programmes to favourable loans and practical guidance such as that offered by Lloyd’s Business Recovery Hub.
In other words, banks have always been about commercial enablement. Especially when it comes to small businesses. It’s no big leap to see how they could be the place that small business owners go to get everything they need to set up a business and start selling online.
Now when we surveyed 529 UK small business owners in 2022, 39% said that not knowing who to trust was one of their biggest barriers to acquiring new digital tools.
Launching a business will almost always feel daunting to a small business owner. There are so many costs, risks and complexities involved. Anyone who can make the process easier and safer will be welcomed with open arms – and who better than a trusted institution like a bank?
Banks can support small businesses to start selling online
Confidence isn’t all that banks can provide by offering a more complete set of small business tools. There’s also the benefit of saving them valuable time.
Paul Simon, a former business growth specialist who spent 30 years in banking and finance, interviewed for our micro business report and said, “We know that small businesses roughly have about 20 minutes on a Sunday afternoon to think about running their business… Small businesses don’t want to go through three pages of options, they just want the answers.”
According to the McKinsey report, 70% of SMEs said they were interested in getting more end-to-end cash flow management solutions from their bank, while 16% said that they had changed their payment providers in the last 12 months – a major factor being the convenience of having the same provider for payments, banking and cash flow management.
This all highlights an opportunity for banks to help complete what is otherwise a puzzle for small business owners. If they want to sell effectively online they need three things:
- Banking: A bank account
- Accounting: Accounting tools
- Transacting: A reliable way to carry out transactions.
If banks invest in offering more digital tools for small businesses, like point of sale technology and e-commerce store builders, they can support the entire first leg of the small business journey – from first getting products online to receiving, managing and reporting revenue.
Traditionally banks might do this through referral programmes – and at BaseKit we’re no strangers to that. Our own KitStart referral programme helps companies to create a quick, co-branded solution for their small business customers. However, there’s an opportunity for banks to go further.
If banks embrace an open ecosystem approach, working with a number of white label partners, they could offer a suite of solutions that all link up with one another. If banks can do this, they won’t only save their customers time shopping around. It could be the friction-free, cradle-to-grave experience that banks have always desired to offer their customers – winning loyalty for the entire lifetime of the small business.
For more insights into what small businesses are looking for, see three ways banks can help e-commerce entrepreneurs right now.