How banks can use software ecosystems to win small businesses
For a while now, banks have offered more than financial products and services – but not for the sake of diversification. Instead, as Alex Kreger, a UX Strategist and Forbes Councils Member wrote last year, “The world of banking is no longer just about interest rates and account balances. It’s a battleground of experiences.”
One tactic to win this contest is to design or be part of an ecosystem. And by that we mean extending the typical banking experience to include more digital touchpoints, services and partners.
What does an ecosystem look like?
Banking software ecosystems aren’t always owned by banks. For instance, NorthOne is a business banking platform and – even though it’s not a bank – it offers business bank accounts through The Bancorp Bank, as well as its own branded bookkeeping, invoice management and revenue tracking tools.
That’s an ecosystem in itself, but NorthOne doesn’t stop there – they also have a long list of integrations and perks with partners, ensuring customers have a fully joined-up experience, taking them from their first business idea to their first transaction, their first hire and beyond.
Although NorthOne is a small business banking ecosystem with its origins in fintech rather than finance, it’s not only possible for banks to offer a similar or even more comprehensive experience, it’s becoming widely recommended.
Why are ecosystems the way forward for banks?
Ecosystems are a way to create a “cradle-to-grave” experience, as some in the industry have called it – an experience that grabs customers by the hand from the first touch point, and guides them through life and business in such a way that they never want to let go.
It’s not the first time we’ve mentioned it, but McKinsey recently published a report advising that banks should consider becoming a one-stop shop for small businesses, “deepening relationships with customers by offering commercial enablement tools such as payroll, accounting, website hosting and design, and marketing and analytics.”
Bain & Company recommended a similar approach for banks last year, suggesting their ecosystems should help business owners to complete “The pressing jobs to be done”.
- Transaction-led businesses, such as e-commerce, need a way of making payments more efficient because of their large transaction volumes.
- Service-led businesses, such as construction, can struggle to track invoices and get paid on time, so they often need accounting tools to help shorten delays.
- Very small enterprises need help with cash flow management to ensure day-to-day survival.
Of course, businesses could go to a number of different providers to get these tools, but the McKinsey research suggests that small businesses don’t want to. They’d much rather have one trusted source.
If your brand is well-established, this will show in the uptake: for instance, 70% of buy-now-pay later users would prefer to use banks when choosing a lender – there’s simply more trust there.
How to create a digital ecosystem – three different routes for banks
We’ll break down the options from the perspective of a SaaS platform that’s been working closely with banks, small business customers and other platform providers.
1. Become an orchestrator
Whether you’re looking at Lloyds Bank’s Cardnet or the Bank of Scotland’s accounting software, you can see tools that are housed under the bank’s own branding – but that’s no guarantee they were built in-house.
While labelling is a way for banks to offer market-tested software quickly to their customers – but it’s also a way for the customer to stay within your branded ecosystem.
By complementing their products with white label solutions, such as BaseKit’s ecommerce store, banks can become the orchestrators of an experience that takes small businesses from their first business bank account to their first transaction online.
The advantages:
- You own the entire experience.
- Loyalty you generate with customers is reserved entirely for your brand.
- It’s faster and more affordable than building tools in-house.
- It’s tried, tested and robust with shared responsibility.
The limitations:
- It requires commitment to work with partners and tie the ecosystem together for your users.
Best for:
- Banks that want to offer a seamless, branded experience to customers.
2. Become a provider
If we take a look at Mettle’s integration with FreeAgent accounting software, Santander’s deal with Elavon, or Metrobank’s preferred Acceptcards, we can see partnership deals are certainly on the table for banks.
The general principle is this: work with others and share the reward. As a bank you collaborate with software or fintech providers, so that your customers can work across your different products with minimal friction – and often at a discount.
The advantages:
- It’s simpler, faster and cheaper to set up than the other options.
- You get to offer market-tested software.
- You quickly increase the value you can offer your customers.
The limitations:
- It’s a co-branded experience. Your customers won’t associate all the benefits with your brand.
- The user experience can feel a little fragmented when you piece together differently branded offerings from different sources.
Works best for:
- New challenger banks and fintechs who need a competitive offering fast.
While we recognise the limitations, the provider route is one we support wholeheartedly at BaseKit – see our own KitStart referral program.
With KitStart, we create a co-branded KitStart website that connects to your ecosystem – so your small business customers build and manage their website with our BaseKit platform via a referral link from your brand. You can monitor signups and behaviour, we take care of everything else.
3. Become a builder
Like the Tidebank’s expense management app or Revolut’s invoicing software, some tools in the banking ecosystem are created in-house, and launched under a bank’s own branding.
The advantages:
- You get to craft and own the entire experience.
- Any goodwill you generate with customers will be reserved entirely for your brand
The limitations:
- You have to take on the development burden – it’s a massive commitment.
Your product is unlikely to be competitive in the market on day 1 of its launch – you’ll need to allow time for market testing, iteration and so on. - There’s a limit to how much you can build – you’ll probably need to explore other options if you want a comprehensive ecosystem.
Works best for:
- Banks with the budget to build experiences that don’t yet exist elsewhere
This is still all to play for
According to 2023 BCG analysis “only 27% of top banks have engaged in ecosystems to a significant extent” but “more than half (52%) are in the experimental phase”.
In other words, ecosystems are on the table but no one has yet played a winning hand.
The same BCG report recommends that banks take part in active and committed experimentation. So banks can go out there and find the route that works for them, whether it’s as a provider, builder or orchestrator, or a bit of all three. As we saw with NorthOne, it’s perfectly possible to combine integration partners and perks with your own-branded tools.
For more ideas on how banks can create ecosystems, see our articles on why banks will be the next base camp for selling online and the first 30 days – how banks will win small business customers for a lifetime.