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Big potential in small business ACH

Study points to need for banks to upgrade capabilities

In an age when the emphasis is on agility, Aite estimates that at least half of banks still service small business customers from consumer banking platforms. In an age when the emphasis is on agility, Aite estimates that at least half of banks still service small business customers from consumer banking platforms.

ACH payments appear to be in a good spot within the small business community: They are increasingly used; liked; priced about right. Yet a new study from Aite Group, Small-Business Electronic Payment Adoption: What Banks Need to Know, adds a cautionary note.

“Banks must enhance their electronic payment offerings to better meet the needs of this customer segment, or they will risk losing them to more agile banks and nonbank competitors,” the report states. “Customers are not as loyal as they once were, and millennial-run small businesses in particular are showing signs of being less so.”

The report, written by Christine Barry, research director, found that among a survey of 1,000 U.S.-based small businesses, conducted this summer, 56% use Automated Clearing House payments, but almost all use it to pay for less than 20% of their bills and invoices. (Businesses surveyed ranged from $100,000 to $20 million in annual revenue.)

So the stakes are high—but the opportunity is large.

Where improvements could help

The study found that more than one-third of small businesses, regardless of size, would be interested in using ACH to make payments if their bank offered it to them. The problem is, many banks serve small business clients using consumer banking platforms, which do not provide entitlement capabilities and other business services offered by corporate banking platforms.

In an interview, Barry estimates 50% of banks—conservatively—still serve small business customers on consumer platforms. She adds that more banks are beginning to migrate these small business customers to more advanced technology platforms both because the customers are becoming more sophisticated, and to meet entitlement/multi-user needs.

“They don’t want to leave money on the table” by having these customers move elsewhere, she says.

One related tool for banks to offer is rules-based engines (aka “payment wizards”). These assist small businesses to understand and choose between different payment options. Some larger banks have already adopted these and online banking vendors such as Q2 and Bottomline Technologies are developing these engines, according to Barry.

To the uninitiated, she likens these software tools to the features found on shipping sites to assist you to send a package the way you want. In regard to making a payment, Barry explained, the wizard would help a company decide which payment option to use—factoring in cost, timing, amount and other variables.

Barry says that as same-day ACH payment grows in use, and as other options come into the picture, including The Clearing House’s Real-time Payments and Zelle, businesses will need help choosing the best payment option. In addition to online banking providers, Barry thinks that fintech players could play a role here, as well. “Fintechs are increasingly seen as partners,” she said, and are adept at providing an improved user interface. [Read "11 questions about RTP"]

Better integration will boost digital pay

Other ways banks could improve the ACH experience and expand its use among small businesses, according to the report, include the ability to easily integrate with QuickBooks or other accounting systems, and to improve the efficiency and convenience of mobile devices used for ACH payments.

The survey found that 37% of small businesses already claim to use their bank’s mobile service to make ACH payments. Asked what would increase their interest in or likelihood of using mobile payments, the top two responses, at 41%, were “Be able to see all bills and supporting documentation on phone/tablet”; and “Be able to scan bills via a mobile app.”

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