By Bernard Lunn
Small business lending is a market window of opportunity big enough to drive a truck through. It is also a perfect fit for “rebundling“; business finance is too complex for point solutions. Small businesses need banks and banks need small businesses as digitization disruption hits their consumer revenue line.
Massive need on both sides and still nothing…
Serving small business would also be a big PR win for those “evil bankers”. If there is one thing we can all agree that bankers should be doing, it is lending to small business. Banks could get regulators off their backs and polish their faded brand.
There are three things stopping banks from seizing this huge opportunity:
- Banks don’t see themselves as being in the service business. Who can blame them? Good service is harder than simple transactions. The trouble is, digital disrupters are taking those simple transactions down to zero price using Moore’s Law….
- The middle child organization vacuum. Banks have units and scalable business models to sell to Big Corporations (oldest child) and Consumers (youngest child). Small business is stuck in the middle and ignored. The way to overcome that is creating an Intrapreneurial venture within the corporate ownership structure but freed from the constraints of “this is how we do things around here”.
- The lack of a simple executable strategy. This is what we address in this post.
Banks are not the first to find the small business a difficult market to crack. It used to be a big problem for the IT business as well. In the olden days, IT meant selling technology to big companies. This meant long expensive sales cycles but with a big reward at the end. Then we had the Internet driven B2C revolution – lots of tiny transactions with short/cheap sales cycles.
Small business was the problem market for IT. Sales cycles were still long. Small business owners still viewed each decision as critical and complex and so insisted on taking their time. Yet the reward at the end of that long sales cycle was far less than in an enterprise sale.
Then along came the Cloud and Software As A Service. This dramatically changed the economics of delivery. Then Social, Analytics and Mobile changed the economics of marketing. Suddenly small business IT was viable and forecast to grow faster than overall IT spending according to Gartner.
A few weeks ago, Rick Huckstep covered Zenefits, one of the fastest growing SAAS ventures ever (a staggering 30% month to month). Their innovation was to offer the HR software free and monetize via a 5% finders fee from Insurance companies. This is also happening in the market around e-invoicing and Accounts Payable Automation, where the monetization is coming from a slice of the short term working capital financing.
Free financial software monetized through financial transactions – that sounds like a scalable business model. It requires banks to think outside the box, but that is actually quite cheap. Banks need to stop thinking of their IT as simply enabling a banking transaction.
Banks need to see a banking transaction as a bye-product of a software solution that solves a problem for small business.
Daily Fintech Advisers (the commercial arm of this open source research site) can help implement strategies written about here. Contact us to start a conversation.