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Business banking, the final fintech frontier

Banking 101


Ever since the establishment of Banca Monte dei Paschi di Siena - first bank in history-, banking is all about helping businesses grow. This principle is vital in today's banking system, followed by laser focus challenger banks who aim to strategically grow their portfolio. The reason is simple, business banking has one significant benefit and this is working capital. Deposits are the elephant in the room in every fintech press conference with vanity metrics such as the number of debit cards shipped or the number of current accounts opened. In addition to capital, business customer acquisition brings along payroll, employee benefits and of course some of the most profitable financial products, business loans, trade financing, and factoring.

First Wave 

However, the majority of the top-notch neobanks out there initially addressed a somehow more "obvious" problem that involves the card issuing side and the mobile banking experience around a current account. We are acquainted with call this customer experience personal finance management (PFM). After expensive acquisition campaigns with customer subsidization (ATM withdraws, FX rates, DCC charges) amortized in the long run, still, deposit amounts remain low. Business banking offerings come as the new shiny acquisition channel in the industry and institutional investors pour money in developing a card acquiring side that - at least in theory - will increase deposits and allow neobanks to market more profitable products.

Second Wave 

Issuing-Acquiring schemes and closed loop wallets definitely make sense, under an ecosystem perspective. Nevertheless, acquiring is a business model that most banks are trying to outsource since profitability is marginal and since it is a technology play dilutes focus from core banking products. Undoubtedly there is a massive cash displacement opportunity that guarantees an upside from five to twenty times today's business revenues, but with a wide stakeholder, ecosystem claiming a piece of the pie. To summarize, banks use acquiring the business as a cross-selling channel for profitable financial products.

Timing

Tier one traditional banks or even community/niche banks have it all worked out and are actually today competing directly with fintechs in the highly profitable ecosystem of business banking. Small business banking, in particular, is the most profitable segment, since large corporations have leverage when sorting their financing needs. Essentially, we are witnessing a clash of worlds while many financial institutions identifying the need for a business finance management platform (BFM) take action in order to compete with business banking fintechs and challenger banks. However, this is the first time we see banks in a better placement than fintechs, owning the business and merchant relations, have undergone the huge investment (technology and subsidy) that modern auguring business requires and have omnichannel banking initiatives that bridge the UI/UX gap.

What they have to do now, is to focus and execute!

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Fintech discussions and conversations around the development of fintech.


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