Small Business & Digital Banking: Does One Size Fit All?
Available On Demand – 22 minutes
How does your institution define a small business? Are you adequately servicing the small businesses you have? Have you thought about expanding your small business practice? Join the CCG team for a panel conversation with host Scarlett Sieber and industry veterans Joe Spatarella and John Macalusco as they discuss how to segment the small business banking market to best align digital services to the identified segments.
Leave today’s session with a better understanding of the small business banking market and the varying behavior and needs of the multiple micro-segments within it.
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Scarlett Sieber Welcome back to CCG Webcast series, we are here for yet another exciting episode. This week, we’re going to be looking at small business and digital banking. Does one size fit all? Small businesses are something that we as a CCG executive team spend a lot of time talking about. We have a lot of interesting conversations and debates. And this week I’m actually joined by two of my esteemed colleagues and Joe Spattarella, Managing Director here at CCG, and John Macaluso, Principal here at CCG. As always, I am your host, Scarlett Sieber, Chief Strategy Innovation Officer here at CCG Catalyst. And we are very excited to get into this great topic. When we were thinking about the concept of small businesses, there really are so many different components and ways to look at that. We wanted to make sure to bring in two experts, one from the consumer side and one from the commercial side to give you those two fresh perspectives on what we’re going to be looking at. So, gentlemen, thank you so much for joining me today. Happy to have you here.
John (Mac) Macaluso Thanks for having me Scarlett.
Scarlett Sieber And right before we get started, let’s do a quick few housekeeping things. If you look at the bottom of the screen, you will see our faces again, not the ones that are live right now, but below that, those are our bios you have. If you click on that, you will be able to access all of our backgrounds. Find out more about our accolades, catch with us on our social channels. And of course, if you have direct questions or ones specifically for Joe or for Mac, you can actually click on that email tab and e-mail them directly. To the right of that, you have the CCG logo that is your go to resource place for all things CCG. We have provided a bunch of content for you -articles we’ve been published in, articles we’re publishing ourselves, future webcasts because we have a lot of great content to come. And of course, if you just want to go to CCG and explore some of the things that we’re doing there, that link is also provided for you. To the left, you have the Q and A button that is there. Please use that throughout the duration of this webcast. As a reminder, we try to keep these short, concise and to the point. We like 15 minutes in and out to make sure that you can go back to your busy day being the executive or entrepreneur that you are. But please feel free to leave a question or leave a comment there at any time throughout the duration of this webcast. If we don’t get back to you during the webcast itself, we will reach out to you afterwards. And without that, let’s go ahead and get started. So, Joe, I’m going to jump in with you first. If we think about so let’s let’s let’s get going here. So banks and credit unions do not subscribe to a standard definition of small businesses. I know that I as a banking executive in my previous years, we’ve had many conversations about that. So what are the best ways to identify a small business and its digital banking needs? How, how do you break that down?
Joe Spatarella Sure. I know a great question, Scarlet. And you know, it’s challenging because every bank, every credit meeting you talk to tries to categorize them differently. Sometimes they do it based on revenue. And you’ll hear some institutions say, well, anything, you know, above the million dollars, you know, that’s a business, a small business. You’ll hear larger institutions say anything below a hundred million dollars. The small business. So really, you know, that’s that’s a difficult way to try to categorize them. The better way to look at it and how how we tend to look at it is the persona of the small business. What I mean by that is there are some small businesses that will be owner, entrepreneur, Soho type entities that behave more like a consumer. So they’re in the consumer persona. They expect the services to be more consumer like. They’re looking for things like account aggregation and an PFM and personal financial management and some other things. And they’re not really interested in paying for those services, which is a delineator and others are really more of the commercial persona. So there’s going to be folks that are startups with growth plans. They tend to have multiple employees. They tend to have other other more sophisticated needs. They’re in more of a growth month. So they may be small, but they may not behave like a small business. And they are, in fact, willing to pay for services based on our experience. So that’s kind of how I see it. So it’s really revenue, number of employees, international needs, willingness to pay for service to serve some of the the dimensions that go into really accurately categorize.
Scarlett Sieber I think that that’s very helpful. The one thing that I love that you mentioned, which is different than what I typically hear talked about when we’re trying to classify and define these is around the behaviors, which I think is a really interesting way to analyze that. So Mac, from your consumer lense, how would you describe you know small business banking market segment? What does that look like from your lens?
John (Mac) Macaluso So the conversations that I have had with community banks and credit unions around how their customers move from a consumer to a small business to a mid-market is really around services. And they and it actually very, very links very closely to Joe’s point about what they’ll pay for. But there’s really three services that are always part of the conversation. A small business owner, as they grow because they add more employees would need something like entitlements. OK. That’s very important to them because they’re going to spread out the responsibility for their finances. The other the others would be that that they would need to automate ACH. Right. Or wires, I guess would be a third one. So then effectively they would want to make payments, B2B payments, either ACH or wires within their platform. Now that speaks directly to the entitlements conversation. Right. If I’m the owner, I’m the only one that’s going to be able to initiate an outgoing wire and find the owner. But I may want to give those permissions to my my accountant or my my financial person to do that on my behalf. So really, that conversation I have and the difference between where they start to move from a consumer to more of a business account is that they want to do more wrong entitlements and wires and ACH. So it’s more service oriented than anything else.
Scarlett Sieber Joe, anything you would add to that?
Joe Spatarella Yeah, I mean, I think one other dimension, you know, which really can drive you to Mac’s point to the services that they need is, you know, what kind of business are they in? Is it multiple hands? Is it the kind of business where, you know, they have to sit on wires for whatever is going to be a real estate property management startup firm? So, you know, I think it takes a little bit of, you know, determination of what kind of business are they in. Are there certain verticals that that, you know, might have a consistent need for certain types of services, such as payments? You know the issue with small businesses and payments is, you know, they don’t really want to know about what is the NACHA format look like or what does Fedwire need? They just know they need to pay this entity or this person on a certain date. And that’s what they’re trying to get done. So really the opportunity, you know, in packaging services for small businesses to insulate them from the various payment silos or other service silos and make it more frictionless for them to perform the services that they need.
Scarlett Sieber So that’s the. Well, I appreciate that. So one conversation that I tend to get enveloped in and wrapped up in with some of my friends is around this classification around mom and pop small businesses. So, do you see? Do either of you see an opportunity to offer digital banking services for the mom and pop small mom and pop small businesses? And if so, how do how does this differ from their larger peers?
John (Mac) Macaluso I think that for a bank to have or a credit union, frankly, to have a viable small business program, they need to be very much involved in the micro business. And that’s really what you’re referring to is kind of a micro business and they need to have a program for that. And that program could include not just deposit services but let alone services. I think that is a is definitely, you know, the key here, too, to how we start to in community banks and credit unions build true value for these customers so that as they grow and their needs grow, they stay with the same financial organization.
Joe Spatarella I guess I read into it that, you know, that that, you know, mom and pop is kind of a funny categorization. Right. So with. As statement segment isn’t one segment. It’s made up of several micro segments, as you mentioned. So, you know, I think the real question is, are they static businesses or dynamic business meeting? Is it a family business that’s done what it’s always done? Well, always do that. Well, if we speed a certain level or again, is it a startup type situation? So, you know, again, it depends on the type of business. I think one way to look at it is what’s the number of monthly transactions that that business generates? Again, is it single or multiple locations and what kind of a package do they use? And do they expect automated fees to that accounting package? Because, again, what cloud-based services a lot of the accounting packages that were really more up in the commercial or middle market are now available to smaller businesses. So, you know, there’s again, I think the challenge is to drive into each of those micro segments, come up with some general attributes and then again, look at whether or not they are a static type entity or a dynamic one that plans on growth in some way, shape, fashion.
Scarlett Sieber Yeah, that classification is certainly helpful. I think one of one of the conversations that I’ve had and that I think is especially relevant given the current situation that we’re all living with this pandemic, is around the consolidation of financial services more broadly and really how those smaller financial institutions who tend to be the ones that are our clients, by the way, are the lifeblood of America and the ones who are really supporting those small businesses. So is there any quick, you know, maybe 30 seconds a minute ideas as to why, if, you know, if we’re talking to some of these smaller financial institutions, why they should be interested in mom and pop businesses if they’re not already?
Joe Spatarella Well, I mean, I can address that. You know, I think what’s going to be really obvious soon is the fact that cash flow and credit are going to be very tight. And what that suggests is they’re going to need tools that maybe they didn’t need in the past to manage their payables and their receivables and their overall cash flow, because, you know, they’re going to be strapped, you know. So I think if banks or are willing to provide those services, I think it would certainly contribute to their overall health and their ability to to sustain themselves throughout this this crisis.
John (Mac) Macaluso No, I agree, I think that in the conversations that I’ve had with banks, particularly as part of this crisis, is that we have proven we have proven the value of the community bank. And in in this as a mechanism to get money into the 30 million small businesses in the United States, truly, truly, the heartbeat of this country is based on those small businesses. And what this situation we’re in has really amplified is the need for a very strong relationship between a small business and their bank. And that may have previously been limited to a real estate loan or maybe a checking account. The reality is, is that what we have what has come streaming out in all of this is that now the community bank is playing a role where they’re a vital part of getting much needed funds from the government in to these small businesses. And that works when there’s a strong relationship between the community bank and the business. And so I suspect that those learnings will coming out of this of the crisis we’re in form a lot of the opinion, direction and strategy for community banks as they look at small businesses that maybe they would not have looked at as strategic before. But now realizing that this may very well not be the last time something like this happens and that community banks are an integral part of the of, frankly, making the community survive. So I think it’s going to be very, very important as we move forward.
Joe Spatarella Yeah and to take that one step further, if you talk about those relations between the small business and community bank, you know, that relationship may be between the owner, entrepreneur and the teller and the branch. Right. So if you if you take that away and if there is no more, you know, face to face type relationships, you have to, you know, substitute, you know, a connection there. And I think that’s where, you know, digital banking comes into play, you know, providing the same types of services, you know. And really, you know, with these days, we have remote deposit capture. You have remote bill pay. We have a lot of capabilities. So really we’re down to cash and coin, whether it’s ATM based or otherwise. So there’s going to be a gap that needs to be filled.
Scarlett Sieber Yeah. I think you both hit on a key point for me, and it’s a way I think historically there’s been a bit of a dichotomy between all of these digital banking capabilities which have promised the idea of relationships in new ways and then the traditional, which is really more relationship based. And that’s where these smaller institutions have kind of been able to shine because of that relationship. And so what’s fascinating about what’s happening now is how important those relationships are. But now combining, like you said Joe just now with the idea of the teller and going into the into the branch is how digital can now replace that and still offer that that relationship, which now more than ever, I think people are wanting. I’ve certainly had conversations with entrepreneurs that I know that we’re going through this PPP process and a few others and they are now moving away from their relationship with the big five and the big 50 because it was very unattached and they didn’t feel that connection. And so they’re actually searching for these smaller institutions now to have that more meaningful relationship. So I do want to get going here to try to keep this to our timeframe. I have at least one more question for you, and then I have a few waiting from the audience, and we’ll make sure we get to at least one of those. So we started this conversation talking about how we’re identifying small businesses. Of course, for financial solutions we need to think about the ROI and the margins at the end. So from both of your experiences, do you believe that small businesses are willing to pay for these digital banking services? And what does that look like?
Joe Spatarella I’m going to go back to the commercial persona again, if they are a growth company, they’re a dynamic company. I think that we’d certainly see that. Honestly, there has to be a strong value proposition. But, you know, I would certainly see those kinds of entities, you know, and again, I think, you know, when you when you break down the micro segments and you pull off a couple of top layers, I think that’s where the opportunity is in terms of fee based services.
John (Mac) Macaluso So I definitely think that there is an opportunity for revenue to be made in in this segment and this small business, and I’ll give you just a quick examples because we’re running out of time. But if as a small business owner, I can make a payment that can be affected in real time. And I could gain access as a result of that payment to say more money because of my line is expanded or I can gain access to more, more inventory so that I can manufacture something, I would be willing as a small business owner to pay for that service. I don’t think we can go back to individual line item payments, but I do think that we could offer enhanced services and charge for enhanced services at this segment. And frankly, I think you can do that at the top of the consumer segment as well, where they start to crash together.
Scarlett Sieber Got it. No, that’s very helpful, so I do think we should it should wrap up here. There is one question that I have to ask because it’s something that I’ve thought about to and so I would love to hear your perspective. This come from Kim. So she said, what is your perspective of businesses and consumers on a single platform? I know we’ve faced this with some of our clients. I’m curious to hear how you think about putting them on a single platform.
Joe Spatarella I guess I’ll start. You know, so we appreciate the question and it’s one that gets asked frequently and frankly, it’s one where CCG Catalyst Consulting Group can certainly help because it comes down to get segmenting the market. And, you know, from an I.T. perspective, sure, it’s easier to support one platform that it is multiple. Having said that, you know, when you when you try to be all things to all people or, you know, we started this session with saying there’s one size fits all. And no, these aren’t tube socks, you know, so, you know, businesses are going to overrun the services available on a consumer platform if they are, in fact, growth dynamic companies. So, you know, I think it really comes down to having, you know, the market segmentation, a clear digital strategy and a go to market strategy to drive that decision and not make it simply on the rationalization that it’s easy to support one platform than it is multiple.
John (Mac) Macaluso I’m in 100 percent agreement.
Scarlett Sieber Perfect. All right. Well, we got it within 20. Thank you so much, Kim, for that question. For those we did not get to, we will go ahead and respond to you shortly after this webcast is over. Thank you again for all of you. Mac and Joe, as always, appreciate the time. Appreciate the conversation for all of you who are joining live or we’re watching this after the fact. Thank you so much for your time. We appreciate it. If you have questions, please continue. You can use that Q and A button until the session is over. Otherwise, you can go ahead and e-mail us. Go to our website if you don’t get the chance to e-mail us. You can do that there. We would love to hear your thoughts, your perspectives. If you have anything that you disagree with. We’d love to hear that, too. We are certainly open for those conversations. And if you want to think about how you can better service small businesses moving forward, how you can incorporate that into your strategy. We would love to have those conversations with you. Please don’t forget to use those resources. You will see our next webcast coming up there. I will have both of these gentlemen with me again next week to talk about business payments. And we have some interesting conversations relating to that. Anyways, please stay safe. We hope you enjoy this. And until we see you again, enjoy the rest of your day. Thank you again, guys.
Chief Strategy & Innovation Officer Scarlett Sieber is one of the world’s premier voices in financial services. She is among the industry’s most sought-after speakers as a thought leader and innovator with expertise in driving organizational change at both startups and enterprises across the financial services and fintech ecosystem. Scarlett has been invited to speak at over 100 prestigious financial services and technology conferences globally, including Money20/20, Finovate, South Summit, and NASA’s Cross Industry Innovation Summit.
Scarlett’s experience includes founding her own startup as well as working at banks such as BBVA, USAA, and Opus Bank. She is a leading fintech influencer, included on lists such as Top 100 Women in Fintech 2019 and Top 10 Fintech Influencers in the U.S. Scarlett also has deep experience in digital strategy and innovation implementation, making her a key asset to building cutting-edge programs for our clients.
Managing Director Joe Spatarella brings more than 30 years of experience in Commercial Banking, Treasury Management, Payments and Financial Technology. Joe has been, and continues to be, at the forefront of successful new digital banking strategies and products. He has a proven track record of leveraging emerging technologies and developing successful go-to-market strategies for financial institutions. Joe’s career started in bank operations and commercial product management. He has a multi-dimensional view of the business with a thorough understanding of sales, marketing, product, operations and technology components, along with the ability to communicate issues and opportunities with a clear, concise and forward-looking perspective.
Joe has previously held senior roles at Fiserv (a fortune 500 company) working within the Commercial Banking Solutions division, formerly known as Online Banking Solutions or OBS. In addition, Joe was a founder, principal and executive with four successful startup companies.
As Principal of our Technology Strategy, John Macaluso has built a reputation within financial services as a trusted advisor to banks and fintechs. With over 30 years of proven leadership, John’s experiences include all areas of information technology, business planning, innovative solution design & deployment, business & operational leadership and business & technology transformation. John advises a vast area of technology within financial services from fintech startups to established global financial institutions. Specialties include digital transformation to established core technologies.
Previously, John held senior roles at Fiserv (a fortune 500 company) driving large-scale change from multi-channel to traditional and non-traditional banking services, national to international markets. Additionally, he served as a CIO for the MLB New York Yankees diving innovation and technology to major league baseball.