Small Business is Big Business

While most banks are spending more time and resources trying to address the needs of small businesses, a large percentage of this segment is still underserved. According to a Javelin Strategy & Research report released last year, about two-thirds of the 26 million small firms don't have business banking accounts.

Smaller companies usually integrate their business and personal relationships or simply open another personal account according to the Javelin report released late last year. That means they may pay lower account fees, but also don't receive cash flow and treasury service attention from a bank's small business sales team, potentially impacting the business' ability to grow.


At a time when banks are looking for ways to acquire new customers and generate additional revenue, marketing to and serving this untapped banking segment is a win-win for banks and small businesses alike. The challenge is to uncover these somewhat hidden relationships. Sometimes, banks are evaluating transactions to determine what customers are using accounts for business purposes while others are using social media to have small businesses indentify themselves.

According to several reports over the past two years by Aite Group, while smaller businesses tend to use banking services similar to consumer banking relationships, their payments habits show tremendous growth opportunity for debit and credit cards as well as online banking services. In fact, according to Aite, only 4% of spending by small businesses currently is done on a small business credit card. Capital One has already responded to this opportunity by allowing small businesses to combine their business rewards with their personal rewards. Other banks are tracking checks and ACH transactions to help find underserved businesses.

Alternatively, firms like Bank of America are leveraging the power of social media to develop the Small Business Online Community which has over 50,000 registered users, while American Express continues to promote their very successful small business OPEN Forum where small businesses can find articles, expert blogs, success stories and advice with limited networking opportunities. Wells Fargo is also the first bank using blogs to stay in touch with small business and retail customers, while VISA teamed up with Facebook to create the VISA Business Network for small businesses to share advice and potentially grow their customer base.

Going forward, bank marketers should take notice of the smaller business market (under $500,000), tieing together personal and business relationships, changing payments behavior and providing better cash flow solutions that can help these business grow.

Monetizing Mobile Banking

As consumers are becoming more comfortable with mobile banking and mobile payments, financial institutions and technology providers are beginning to develop and deploy more innovative solutions with a focus on gaining market share, reducing costs and realizing new sources of revenue. It is clear that the question is no longer whether mobile banking and mobile payments will be important to a bank's business (84% of respondents to a recent KPMG survey said that it is). The question has become, can banks realize the full potential of the channel from a customer development and revenue perspective.

To this end, one of the best sessions I attended last week at the BAI Retail Delivery Conference was around the opportunity for banks to monetize mobile banking. Presented by Matt Wilcox, senior vice president of eBusiness strategy for Zions Bancorporation and Drew Sievers, CEO of mFoundry, the session focused on the opportunity for mobile banking to move from simply reducing costs to actually being the foundation for revenue generation. 

Mobile Banking Evolution

At the beginning of the presentation, Wilcox presented an overview of the mobile banking evolution that has occurred over the past several years. According to Wilcox, mobile banking has evolved from being simply a channel innovation to providing the potential for significant channel migration cost savings as shown below. He noted, however, that banks should not build business cases around 1:1 transaction displacement, since many consumers increase their overall transaction volume as they move to more automated channels. This is similar to what occurred with ATM volumes that increased at a much higher rate than branch transactions decreased in the past.

Source: TowerGroup and Fiserv (2010)

Wilcox also provided a look at the differences in profitability and attrition that has been attributed to mobile channel engagement at Zions Bank. As shown below, customers with both an online and mobile banking relationship generated close to 30 percent more revenues than an online customer, while having an attrition rate that was more than 60% lower. 

Source: Zions Bank

While Carl Tsukahara, CMO from Monitise stated in another BAI session that, "the wallet wars will be over in the next two years and that banks need to get off the sideline", Drew Sievers emphasized that banks still are in an extremely strong position relative to other players. According to Sievers, "Banks control the key elements of funds, identity and authentication. In addition, banks have consumer trust and millions of pieces of software on mobile phones, positioning themselves strongly in the mobile wallet market."

Mobile Revenue Potential

This session continued with Matt and Drew discussing the significant revenue potential of mobile banking. The potential was put in context of mFoundry's new mobile banking platform (Fin.X), that provides banks a choice of mobile apps from a Service Provider Network of 30+ companies including FIS, Diebold, Dwolla, Micronotes and Blackhawk Network. According to the presenters, there are 14 categories of revenue that banks can leverage in the future, including more traditional sources such as bill pay, mobile deposit, PFM and security services along with less traditional features such as expedited payments, credit scoring, gift card issuance, insurance quotes and even integrated retail bar-code scanning and bank product cross-selling.

Based on preliminary estimates, close to $100/customer annually can be generated mobile enhancements as shown below. According to Wilcox, "I believe services such as expedited payments take a proven model and revenue stream and make it more convenient on the mobile banking app. In addition, many of the other revenue streams place a value on customer convenience and integrate products that the customer already purchases through other channels such as gift cards, insurance, etc. I think we have only scratched the surface here." Sievers added, "Integrated services like those provided through Fin.X have the potential to transform mobile banking into an institution's most profitable channel."

• Bill Pay: $20
• Online Account Opening: $15
• Merchant-Funder Rewards/Offers: $15
• Enhanced P2P: $6
• Credit Scoring: $8
• Gift Card Issuance: $12
• Insurance quotes/Referral Revenue: $15
• Cross-Selling: $7

Initial mFoundry Fin.X Partnerships

The following is a sampling of partnerships announced last week my mFoundry to be included in their Fin.X cloud-based partnership solution.

Blackhawk Network: Will offer digital and physical gift cards from hundreds of brand name merchants to smartphone users which can later be redeemed electronically.

Micronotes: Will deliver individually tailored and actionable promotions to a customer's smartphone using big data analytics and customer insight improving relevance, timing and offer delivery. 

WAUSAU Financial Systems: Will provide the convenience of mobile remote deposit capture (RDC) capabilities using WAUSAU’s Deposit 24/7 Mobile™ functionality. Institutions can choose from two additional providers of mobile RDC solutions as part of the Fin.X solution.

Dwolla: While mFoundry is already recognized as the company powering the biggest and most successful mobile payments program to date, Starbucks Card Mobile, this partnership allows for a low-cost P2P money transfer service and a real time alternative to ACH payments which can take 2-3 days.

Diebold: Will allow users to scan a Quick Response code on the ATM and enter an authentication code to initiate withdrawals and deposits without a card. The smartphone will be used as an authentication device, reducing the security risk associated with lost cards, stolen cards and skimming. 

"With mFoundry's new service, banks and credit unions can select as many, or as few, extensions as they want", according to Sievers. "We will be adding new partners into the ecosystem in order to create an even larger and richer offering."

Untapped Opportunity

The key to monetizing mobile banking is to aggressively move people from traditional channels to mobile. I asked Wilcox how banks should encourage customers to use the mobile channel when many banks have had limited success moving beyond getting early adopters to engage? According to Matt, he believes getting clients to handle their balance checking on the mobile device is still a huge initial opportunity that will build engagement over time. "Moving clients from the IVR or contact center to the mobile device is still a great opportunity", he stated. "I also believe banks have an opportunity to engage clients within mobile by removing the tie to online banking. We are only now seeing banks decoupling these services, with those banks doing so realizing a larger growth in adoption."

Sievers added, "The future of mobile banking is how you generate more revenue for the financial institution. It's not only about saving money since mobile banking pays for itself. It's about making the channel a revenue generating tool."

Additional Insights

1. Monetizing Mobile: How Banks are Preserving Their Place in the Payment Value Chain (KPMG 2011)

2. New Research Reveals Untapped Market for Mobile Banking Among Offline Customers (Fiserv, 2009)