When entrepreneurs look for an opportunity in digital banking, they tend to skew to either the consumer or the business end of the spectrum, building banking products that cater to one or the other.
But is the real opportunity in doing something completely different, and tapping the middle ground? What if a banking service could add value for an employee and an employer in one? This would surely be a unique value proposition, and even create a powerful distribution network for a startup bank.
To understand what types of products we might need to build to turn this concept into a reality, it helps to explore some of the dynamics of the employee/employer relationship.
- A business is generally an employee’s biggest source of income. Because they control the flow of money, they are in a good position to help employees be savvier about where to direct their salary to make their dollars go the furthest and to help them build wealth.
- When individuals are in control of their finances and debt, this has a big effect on their mental wellbeing. Increased rates of mental wellbeing are directly linked to an increase in workplace productivity and retention.
- Through bulk buying power, businesses can negotiate and access great deals for employees on their behalf. This again helps with retention. We are seeing this with fintech platforms like Employee Hero, Zenefits and Flare.
- Businesses are arguably in a better position in terms of ‘knowing’ a borrower who is an employee when it comes to making a credit decision. We are seeing this already play out with fintechs like PayActiv, Ziero Financial, Zebit and Kashable who are assisting with employer/employee loan schemes. You can read more about them here.
- Banks and accounting packages generally charge fees to businesses to pay their employees. These can be embedded costs per employee in the accounting software itself, not to mention transaction fees per individual deposit charged by the banks, and fees for access to batching services through business banking platforms. These admin fees seriously add up.
So where does that leave us and what are the product concepts that could drop out of this?
An interesting place to start is to look at what is already happening in the prepaid debit card market, which is a halfway point towards exploring how a financial relationship between and employee and employer can be extended.
Payroll card services that use prepaid debit cards instead of bank accounts when depositing an employee’s pay relieve some of the burden of 5, but have received a lot of negative press for questionable ethics. Often these services appear to prey on the underbanked, passing through payroll processing fees to employees who then incur merchant service fees for using their prepaid debit cards.
But maybe there is a way to make the product positioning better?
For example, today I hold a debit card issued by my bank. I also hold a bank account linked to this debit card, again issued by my bank. If my bank provided an awesome service that helped with 1,2,3 and 4, then I might be quite happy to stick with this and wouldn’t require and alternative. But the fact is my bank doesn’t, so I would actively consider an alternative, if it were presented.
Let’s imagine I’m starting a new job at Acme Corp, putting me in a financial decision making ‘hot state’. Acme Corp’s HR team send me a link to their online induction tool a week out from me beginning the job.
After filling out my personal details, I’m then asked to customise and optimise my take home pay. If I opt for the payroll debit card option instead of my regular boring bank account , not only can I set if I want to be paid weekly, fortnightly or monthly, but I can start to bucket my income into savings ‘envelopes’. Along this journey friendly recommendations are made to ensure I stay within ‘safely save’ limits, that don’t put my minimum disposable income into jeopardy.
Maybe reaching savings goals comes with a co-contribution from my employer for staying on top of my financial health, and as an ‘above and beyond’ that Acme Corp offers compared to its competitors in the market. Suddenly I’ve knocked off 1 and 2 from my list above.
Then looking at my purchasing behaviour, or the aggregate purchasing behaviour of employees through this payroll card, the platform supporting this can start to help the business negotiate deals that actually make sense, based on real purchasing data. Now we’ve knocked off 3.
And while we don’t really want to encourage employees to get in debt, 4 is pretty easy to facilitate using a cash advance type model.
So maybe the secret to building a truly differentiated digital bank isn’t to be the best friend to a consumer, or the best friend to a business. Maybe the secret is to be the saviour to both in a way the incumbent banks will always find it incredibly difficult to be. And maybe you don’t even really need to be a bank to do any of it, at least to begin with.