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Understanding how small businesses tick used to be the sole role of bank relationship managers. Now, say Codat’s Yasamin Karimi and U.S. Bank’s Irv Henderson, AI is helping them get even closer

Small and medium-sized businesses (SMBs) have faced historic challenges over the past 18 months. Enforced closures, a dramatic shift from in-person to online sales, and jumping through hoops to obtain precious rescue funding (for those that could get it) have taken their toll and left this significant economic segment reeling.

At the same time, the sudden somersaults banks had to perform to deliver rapid loan injections at governments’ behest, accelerated the need to focus on scaled digital banking solutions to small business customers remotely, when visiting a branch was no longer easy or desirable.

The solutions quickly engineered to plug that gap have opened up a raft of new possibilities, perhaps the most exciting of which is the ability for machines to mimic relationship-led approaches, the loss of which has been long-lamented by business owners who miss the tailored support than banks’ business relationship managers used to provide.

Aside from the particular challenges posed by the worldwide pandemic, life has long been hard for SMBs – from the endless amounts of admin that owners shoulder, to the difficulties in managing invoicing and cashflow, and securing the credit lines they need to supplement it. But an NCBI report looking at the initial customers were willing to look elsewhere to find solutions. Nearly two-thirds (64 per cent) said a lack of transparency, trust and relationships could lead them to choose a new provider, and 61 per cent could be prompted to move, due to a lack of personalised assistance.

Irv Henderson became chief digital officer for small business at U.S. Bank two years ago, when the bank acquired the Talech software company that he’d founded. The bank recognised that it needed some of the groundbreaking solutions Henderson’s tech offered in order to address exactly these kinds of problems. He now focusses on helping small business owners to run things better through software.

“Before starting Talech, I led the mobile products division at Yahoo!, so I’ve spent a couple of decades thinking through customer experiences and software experiences for business owners,” says Henderson. “Our journey, at U.S. Bank, is increasingly about getting in front of small business owners through software in order to deliver the bank’s services.”

Small business owners’ problems also preoccupy Yasamin Karimi, head of product at British software company Codat. She has a background in payment services at Mastercard, UK challenger Starling, and in her own business.

impacts of the coronavirus on active small businesses in the US was bleak. Using data from the April 2020 Current Population Survey, it found that SMB numbers plummeted by 3.3 million, from 15 million to 11.7 million, or 22 per cent, from February to April 2020 – the largest drop on record.

Equally troubling, a report the same year by JP Morgan and Chase Co, discovered that half of SMBs operate with fewer than 27 days of cash reserve, making them particularly vulnerable in the current and any future economic crises. Meanwhile, PwC research among

469 US SMBs suggested they felt left out in the cold by banks. Although 81 per cent said they still had the same level of trust in their banks as before the pandemic, 55 per cent said they would like them to be more proactive in helping them through their current troubles. And there were indications that usually loyal SMB

We’re beginning to think through things like elastic lending based on real-time data… This is an epic journey for banks

Irv Henderson, U.S. Bank

“Our primary focus is on making small businesses’ financial lives easier by providing the banks they use with seamless integrations into small business software systems to automate a lot of what they do with that bank, like applying for a loan,” she explains.

The pandemic has accelerated banks’ adoption of such solutions, Karimi says.

“It moved the primary delivery mechanism for financial products online, as businesses moved online, and a change that was already rapidly progressing has now been propelled forward.

“People stopped going into physical branches, which was a challenge for any banks that weren’t used to operating primarily online. In related areas, like payments, the pandemic led to huge growth in open banking in the UK, and more than 2.5 million people now use it to move, manage and make the most of their money – that’s a mighty 150 per cent rise in the number of users since the outbreak of COVID-19.”

Henderson’s experience the other side of the Pond was similar.

“If we thought bank/small business relationships would take 10 years to achieve mass adoption of digitisation, that’s now probably three or five years,” he says.

“When I started Talech, I was motivated by significantly improving small businesses’ efficiency to help owners get home earlier to their families, by giving them better technology. Now I’m at U.S. Bank, that’s still what it’s all about. With business owners not walking into bank branches, we’ve pivoted to digitising those touchpoints, using technology to schedule online meetings and contextually present the next opportunity, whether that’s working capital or a new business credit card, to bring services to the customer, rather than waiting for them to ask.”

Some of this is about mobilising data better, as Karimi explains: “On average, business owners use around 100 software applications to manage different areas of workflow, from accounting to online payment systems, and these provide banks with a unique and valuable view of their financial health. However, understanding and interpreting that volume of data can be difficult, which is why we’ve launched our Insights product to provide banks and other financial institutions with out-of-the-box tools to better understand business performance metrics so they can develop and offer more useful products for their business customers.”

Harnessing this data also helps to enhance banks’ relationships with those business customers, says Henderson. “One of the core pain points for SMBs, is cashflow. In most major markets in the US, 85-90 per cent of SMBs have less than half-a-million in revenues. Cash really, really matters and we can help them maximise it by using data to deliver delightful product experiences, like speeding up payments and delaying pay-outs until they’re due. Anything that brings more of the bank’s services into that customer journey is really powerful, and makes them really feel helped.”

The integrations that Codat provides with software systems that businesses use, gives access to real-time data, so that banks can also better understand their business customers and improve the standards of service they can offer.

“So, instead of being reactive when a business makes a specific request, a bank can proactively assess its data to provide it with a loan, for example, or a cheaper credit card rate,” explains Karimi. “That changes the relationship dynamic, enables banks

to garner a greater share of the SMB’s wallet and means the SMB is having to manage fewer applications.” For both Henderson and Karimi, the whole object of the exercise is to keep customers close. “If you bring in rich data that allows customers to take smart actions, that’s incredibly sticky from a bank’s perspective,” says Henderson. “We’re beginning to think through things like elastic lending, building on real-time data, to lend a business a certain dollar amount at the beginning of the year and a different dollar amount in the middle of the year, because we know their business is cyclical. This is an epic journey for banks. We’re likely embarked on a 15-year disruption here.” Ironically, through data, the relationship between banks and SMBs could come full circle, to one based on lifelong, deep understanding – the way things used to be. Instead of “Historically, when someone walked into being reactive a bank, the banker would know not only when a business their name, but who they were related to, their family history. There is no reason makes a request, a why we could not deliver that in an even bank can proactively more powerful way,” says Henderson. assess its data to “We believe a differentiated way of doing it is human-plus-digital. In terms of provide a loan, for how we treat a business owner when example. That they walk in, virtually, we are already there. changes the And, if an initial conversation about working capital, for instance, highlights relationship more comprehensive business needs, dynamic they can bring specialists, who could Yasamin Karimi, be anywhere in the country, into that Codat conversation virtually.” This will all require some joining up behind the scenes, including the sharing of data between departments. “A prerequisite will be building interfaces that connect them,” stresses Henderson. “For example, an offer of working capital, in the context of someone already using the bank’s software to run their business, is perfectly natural. Somebody calling them out of the blue to ask if they want to borrow without understanding their business, is not. For customer retention, going forward, it’s going to be very important to get to that one view,” Karimi agrees that relationship managers are ‘the most important people to SMBs‘, but that to do their job well, they need empowering – with automated access to a level of data that can only come from a digital interface with businesses systems.