French futurist and industrialist Gaston Berger said the purpose of looking at the future was to disrupt the present. So for what it’s worth, here are our thoughts – in no particular order – on small business banking trends in 2017.
Banks will bite back
Globally, banks spent a good deal of 2016 consolidating their financial influence over the small business fintech sector under the banner of collaboration and partnership. This was done either through direct investment into start-ups or at arms-length via their VC arms. The Tradeshift/Santander as Innoventure deal typifies this. Down under Westpac took a stake in online small business lending broker Valiant via its VC conduit Reinventure. There are countless other examples of banks stepping into this space.
Bank sponsored funding of fintech startups to cement new distribution channels for either their existing bank products or to simply clip the ticket will continue in 2017. My prediction is that emboldened by their ‘behind the scenes’ fintech learnings, some banks will move out from behind the curtains to reclaim the entire value chain once more. NAB QuickBiz is one example.
While a Business Insider report suggests 54 per cent of incumbents have seen fintech partnerships boost revenue, no one seems to be able to satisfactorily answer the question as to whether these same partnerships are proving beneficial for small businesses. What is the fintech metric of success?
The cloud accounting war will heat up
Xero has dominated the cloud accounting conversation for some time, however industry commentators are have noted the likes of Intuit and Sage are waking up to the threat. Intuit in particular is responding to the rise of the gig economy, which is transforming the way accounting software is consumed and expanding the addressable market beyond pure small business owners. Companies like Intuit are recognising 9 to 5ers who also drive Ubers in the weekend or pick up odd jobs on Air Tasker have very different needs to full time business owners.
Cloud accounting expert Sholto Macpherson noted the shifting dynamic in a recent article:
“Intuit’s a big ship and it takes a long time to turn around. In 2016, it’s clear that not only has CEO Brad Smith turned the ship around, it is picking up speed. And in answer to the most important question: Can Intuit move as fast as Xero on the dev side? For the first time, the answer is unequivocally yes. Intuit is in fact moving faster, in some areas.”
For those of you who are keen for more insights into the cloud accounting space, also check out cloud accounting and futurist Matt Paff’s 2016 review.
Chatbots will drive the personalisation of small business banking
Personalised banking services and financial advice for small businesses will be delivered at scale via chatbots. Most will emerge/pivot out of the PFM sector, which is already over serviced by non-differentiated startups. Sage launched Pegg in 2016, while Xero previewed its chatbot at Xerocon.
However the juicy stuff will be when chatbots don’t just surface account information but can actively transact on your behalf. Fintech startups are eager to play in this space but for the most part continue to be blocked by banks and access to data.
Mobile payments will become a business mainstay
In its last earnings call Apple announced YoY growth in Apple Pay transactions of 500 percent, with global penetration of Apple Pay acceptance in store slowly increasing. While they’re unlikely to have an overnight Pokemon Go moment, mobile payments will move from being a fringe payment method to edging on mainstream by the end of 2017. Businesses will need to adapt and upgrade tech infrastructure to cope, or risk being left behind.
Dave Birch’s cardmegeddon is still a while off though.
Techfin tsunami will continue to show no mercy
The subtle yet significant shift in the bargaining power of banks verses tech giants was nowhere better exemplified in Australia, where the local competition authority denied the incumbents request to collectively bargain against Apple to improve deal terms and gain NFC access.
Small business owners will increasingly turn to tech providers who can enable them to accept payments via new payment methods – Alipay and WeChat being the most obvious. This will further fragment the banking relationship for business owners, as retailers look at banking from a payment perspective first, rather than deposits and lending. More innovation continues to happen on the payments front than on the deposits and lending side, thus is a strong driver in purchasing behaviour.
Governments will wake up to social impact of enabling small business finance and banking
The growing wave of populism and main street revolt is underpinned by the financialisation of economies worldwide and the stagnation of growth in the small business engine room of the economy. This is probably a super optimistic prediction, but it would be heartening to see governments connect these dots better than they do today, and stand up to vested interests more strongly. If they don’t do it, chances are the voters will do it for them.
For a radical approach to how this could be actioned, economist and policy advisor Nicholas Gruen offers a blueprint for central banking disruption here.
API access to banks will be more common place
The movement for open data is gaining traction and more and more banks will start to provide basic API interfaces. More API first banks like Cross River will also start to emerge as they attempt to make the platform banking play ahead of the heavy footed incumbents.
Innovation around digital identity will accelerate
Without a commitment for a shared KYC platform between regulated entities, innovation in digital identity will separate the banking haves from the have-nots. Fintech startups like Hashching who embrace new digital ways to KYC new customers and find clever ways to strongly and securely authenticate customers will slash their acquisition and compliance costs, giving them a competitive edge.