Why There’s Big Business in Small Businesses
Innovative banks and fintech companies have taken the lead in setting new standards for consumer banking. Banking products and services can now be accessible to a larger demographic who weren’t targeted before by incumbent financial institutions. An example of this is how Robinhood democratized investing for everyone.
It’s time to give the same attention to small businesses which provide direct employment to more than 60 million employees and cover 99% of all US Businesses.
The following graphic gives an overview of the fintech landscape focusing on SMBs. These products have gained significant traction — a number of these companies are valued at over $10B and $100B.
A study by McKinsey on the daily activity of SMEs found that 74% of their time is spent on non-core activities like bookkeeping and banking, only leaving about 25% of their time to other valuable work. Within the accounting and banking sector, a large portion of time is spent following up on tasks regarding accounts payable, accounts receivable, and other finances where a lot of the work is manually handling data between spreadsheets, paper, and accounting software.
Although these activities are essential for business, they do not create profit. Companies that can bring convenience, reliability, and time savings for these businesses stand to gain market share for their product.
The focus should be on payments
Payments is the prime area where innovation can directly help reduce costs and bring efficiency and accuracy if appropriate solutions are provided to businesses.
There are two main problems which are closely related that aren’t widely addressed by the market..
- Incredible inefficiency of check payments — they are costly and error-prone, and they delay payments, negatively impacting cash flows.
- Processing paper invoices and corresponding reconciliation, payment, and tracking.
The SMEs need to have an integrated solution which solves both the above problems with a seamless tech stack where any invoice, receipt, and purchase order can be automatically converted to machine readable structured data without any manual intervention. After the data has been extracted, the user should be able to click and pay by the payment method of their choice. Even better is to automate the whole process where ingesting any document can be tied to actual payment workflow.
The solution can come from banks themselves or fintech companies who want to generate new revenue streams by focusing on increasing customer satisfaction. Valuable accounting and transaction data insights can be gained for making informed decisions like credit limits and tailored product recommendations. The solution can even be marketed as a premium offering to existing customers with a clear monetization path.
This brings in a winning situation for everyone: the platform provider can widen its reach and the businesses themselves get higher productivity and reduced costs due to less friction in work that can’t be avoided.
How banks and existing solutions can get ahead
Banks have an inherent advantage as they already have strong relationships with their business customers. If banks want to compete with fast moving fintech companies, they cannot rely on legacy technology or reputation to keep and grow their customer base.
For example, a design based on integration with existing banking applications will instantly have a higher acceptance rate with customers than building something from scratch. Banks already have strong partnerships with other financial services which reduce cost and complexity of investment to get the product to market in the hands of real consumers.
However, the solution that banks choose must be easy to integrate within their existing banking software. Any solution that would take months of prototyping should be avoided. APIs are typically easy to implement even in most complex technology stacks and should be the preferred way to move forward.
This way, the existing bank’s solutions can be layered on top of the APIs which will do the heavy lifting of processing the PDFs, images, and paper invoices and the corresponding payment processes. Banks can then quickly create a product, test with real customers, get feedback, and improve faster because they already have a large set of customers using their existing software day in and day out.
Regardless of choice, the most crucial aspect of choosing any solution is considering if the partner has been able to prove its technology with renowned existing customers.
Photon Commerce aims to empower the next generation of fintech and SMEs with its partners like Brex, Stripe, and First Data to bring its solution enabling SMBs to streamline invoicing and payments using artificial intelligence. Learn more about giving power back to small businesses at photoncommerce.com.
