Winning with Small Businesses Part 5

Three Simple Steps Financial Institutions Must Take to Design Products For Small Businesses

Moving from the critical roles of pricing and ease of buying/selling in product design, this series  now tackles what it means for financial institutions to have a card issuing product suite that’s simple and segmented.

By offering a product suite that allows small business owners to quickly assess their options, they are able to “see themselves” in one of the products which in turn helps facilitate the decision making process. How can your financial institution do this? Start by offering descriptions of primary product features that fit on a single page with no fine print required to understand the core value propositions. By designing and presenting information in this way, SMBs will have less difficulty finding the right products for them. 

Once this level of simplicity is achieved, it can be applied to properly segmented small businesses. How can you determine the right number of segments and corresponding product offerings? In Vantiv’s experience, there are three dominant segments: Micro-businesses, Business-to-consumer, and Business-to-business.

Micro-businesses 

Micro-businesses are frequently start-ups or secondary income sources for their owners. Little time is spent contemplating financial services because their needs are relatively simple. They often only require basic transactions (cash withdrawals and deposits, check writing and deposits, the occasional wire transfer), basic e-commerce capabilities, and advice on the basics of setting up a business (including legal entity structuring, financial management, and tax filing).

Micro-businesses are oftentimes reluctant to pay for financial services because every dollar is invested in growing the business or returning value to the owner. They look for products that are simple, include only the basic features, and offer transparent (ideally waivable) fees.

Business-to-consumer

Business-to-consumer small businesses represent the majority of non-micro small businesses. While most don’t have full-time financial managers, they tend to actively manage their cash flows. They’re looking for tools that allow them to do this while enabling payments as well (payment cards, payroll/ACH, checks, and cash with limited wires). These businesses recognize the value that banks and credit unions provide and are more aware of pricing practices. They’re also more likely to need credit either for short-term cash flow management and/or expansion. Product design here often speaks to economic optimization and tools for business growth.

Business-to-business

Business-to-business operations are more reliant on advanced payment (treasury management) services and access to capital. These businesses are often larger and more diverse. Some have extensive payments needs (from payroll to international supply chain management to receivables management), while others have infrequent payments needs but carry large balances and rely on access to credit to even out cash flows.

Often having a full-time (or at least dedicated part-time) financial manager, B2B small businesses are more likely to take a best-in-breed approach to financial services selection. This means that they are more likely to disaggregate providers in order to gain superior pricing. Here, leading product designs incorporate premium features often at substantial price reductions. This often includes fee waivers for high transaction volumes, some amount of free wire transactions / money orders / cashier’s checks, and heavy discounts or incentives for merchant services and credit cards.

For specific examples of how financial institutions are bringing these recommendations to life, download our paper at Winning with Small Businesses. Stay tuned for our next installment that discusses how to bring all of these strategies to life. If you can’t wait for the series finale—you can find Vantiv’s full whitepaper, and access a webinar, at the Winning with Small Businesses home. Our previous discussions covered these topics: