The Millennial Small Business Gap

Kris Carrera
Business Line Executive, Credit
Posted on July 28, 2016

Millennial Small Business

Payment Offerings for Next-generation Entrepreneurs

We’ve all become accustomed to a stream of editorials and articles rightfully reminding financial institutions of the importance of catering to the needs of the millennial generation. Eighteen to 35-year-olds have just become the largest living generation in the U.S., and there is little doubt which demographic is driving the change we see around us. From how we access our bank to how we buy at Main Street stores, millennials’ love of real-time immediacy is dictating the pace.

But consider the plight of the small business owner – what has changed for them? Small business owners are increasingly younger, we’re witnessing millennials transform what it means to buy and sell a company.

A Tale of Two Service Levels

Compared to individual consumers, small businesses have very different demands from their banks, but the focus on retail renovation has left the small business sector locked into a baby-boomer mentality. Baby Boomer and Generation-X business owners still use archaic mechanisms like checks, purchase orders and accounting software. Consequently, banks have been slow to innovate for these newly-prioritized needs.

Large numbers of millennials are buying established operations from the older generations or starting afresh with their own initiatives to become small business owners. Despite that only about five percent of today’s prospective small business are millennials, they are poised to grow rapidly as the baby boomers sell and retire. Millennials bring a new perspective to the game – the products and services they receive are worlds away from their digitized retail experience. Millennials in the retail space want everything mobile and online causing younger small business owners are to be underserved.

Take it Virtual

Younger small business owners conduct business in a different way and increasingly demand service levels similar to the consumer world’s. With no reliance of decade-old tools such as spreadsheets and checks, they are expecting a real-time online experience from their financial institution.

When millennials buy established business from Boomers and Gen-Xers, the first order of business is to streamline their back-office payment infrastructure. Similarly, those starting up their own businesses from scratch have a limited need for traditional services. With little interest in personal contact with advisors, they demand online tools rather than face-to-face discussions and paper trails.

As the primary channel for businesses migrates from the branch network to online apps, banks need to adapt their internal processes and information delivery to offer a functionally rich experience. Make it mobile, make it real time and make it compelling.

Small Business Have Bespoke Needs

How do the products and services that satisfy millennials differ from those groups before? Frequently, the products are simply clones of those offered to the retail customer.

For example, many banks offer traditional plastic credit cards and standard checking accounts to businesses. In reality, virtual card and accounts are needed –just offering a business branded version of the retail product adds little value. Rather than monthly statements, data must be moved online to allow immediate reporting and analysis. Small business owners should be able to monitor daily employee real-time spending and set up card tokenization. Reporting needs to be delivered coherently and consistently with tools to project future financial expectations.

Today, a bank’s primary online interface with customers is through their mobile/online apps, but this will soon change. Looking ahead, banks will securely open-up access to all customer and business accounts to the outside world in order to allow transaction histories, account balances and the embedding of payment services into third-party applications not directly under the control of the bank.

An Underbanked Sector in Need of Solutions

Small businesses are among the fastest-growing and most profitable sector in the payments world. However, few banks are developing digital offerings that compare to the consumer sector. Branch visits are largely a thing of the past for consumers, now reserved for mortgage discussions. Face-to-face conversations have been replaced by compelling online tools. Yet, some traditional small business owners still prefer to discuss issues in person. But given the expense of maintaining branch networks for banks and the inherent cost of face-to-face consultations, would it make more economic sense to shift expertise into online and mobile tools?

Not surprisingly, traditional payment services like checks and ACH are often the most vulnerable to fraud – the average check fraud is around $1,200 with ACH frauds nearing $700. A fully digitized service based on online and virtual card payments, underpinned by high security, results in a much lower exposure to fraud and includes improved fraud redress – the average card fraud is a more manageable $130. By eliminating check usage, small businesses can drastically reduce their risk exposure.

Small businesses currently represent an attractive opportunity for increased revenue and mutually beneficial long-term relationships. Over recent years, larger banks have been pricing themselves out of the small business market, preferring to focus on larger corporate interests. This has pushed many small businesses into the arms of the smaller regional banks for basic business services. With some smart product and service realignment, the move toward a more digitized service delivery will enable smaller banks to snap up an undeserved customer segment that is crying out for a fairer deal.

There are around 400,000 new small business start-ups in the U.S. annually, and since the end of the recent recession in 2013, small businesses have accounted for approximately 60 percent of net new jobs. This is clearly a vibrant millennial sector. Banks have an opportunity to steal a march on their competition by offering fully digitized products and services through online and mobile channels. Millennials are going to change the way services are delivered to small business in the same way that the consumer payment market changed. It’s time to get with the program.

That’s how I see it.  What additional services do you think younger small business owners want?


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Kris Carrera
Business Line Executive, Credit

With over 25 years of international payments experience, Kris was responsible for the launch of the first successful cobranded card program. A leader in risk-based pricing and target marketing using predictive data analytics, she specializes in merchant services, credit cards and home equity. Kris has received Best Travel Card, Best Cobranded Card and Best Private-Label Program awards.