Payments: The Competitive Edge for Banks in the Fintech Era
By Kevin Jones, Chief Executive Officer, Celero Commerce
In a fintech-mad world, it's rapidly becoming a payments-first approach for bankers. When virtually every type of financial institution is a competitor, those who control accounts receivable income will win the game of business banking.
In other words, if you control the payment, you control the entire relationship. Banks recognize that unless they lead with a payments-focused strategy, they will watch as other banks and fintechs take their most valued customers—and deposits—from them. A robust payments suite with cutting-edge technology, backed by trusted service and complimentary solutions from a local banker, provides the winning combo for FI’s to leverage and drive significant growth.
BANKING'S BIG THREE
Traditionally, banks have focused on the big three paths to success—deposits, loans and lines of credit (LOC), and investments and insurance. Competition for these comes from national, regional, and community banks.
Bankers often have an insatiable appetite for these three areas, and rightfully so, the competition is fierce. Consumer deposits are largely shifting toward larger online and national banks, partially driven by media narratives regarding the health of community banks, as well as the larger banks willingness to pay more to attract consumer deposits.
Recognizing this, community bankers are shifting their focus to pay special attention to the highly profitable small-to-medium business (SMB) space. That shift has led them to realize their payment solutions are typically one of the less competitive offerings they provide to customers.
A strong payment strategy can cure-all for retention, attraction, and growth—especially given how central the payment solution is to the efficiency and health of small to midsized businesses.
THE FINTECH ASSAULT
As if large banks weren't enough of a competitive threat to community and regional banks, FI’s also have to counter the full-on assault they face from fintech companies.
Online banks, specialty lenders, and wealth management players offer payment solutions. Financial management apps and embedded finance options with big name recognition, like Intuit QuickBooks and Shopify Balance, have dominated the field. Finally, digital payments companies like Stripe and Square are particularly worrisome competitors to FI’s.
These competitors compete directly against banks for Big Three revenue drivers while cross-selling their products and those of their strategic partners. As Square, Intuit, and others have moved from simple acquirers to FDIC-insured banking institutions, banks need to partner with a strong fintech company to remain relevant.
Banks do need to be selective in choosing that partner. It's important to find a partner that wants to work alongside the bank as a strategic ally to help protect and grow their business customers.
PAYMENTS TAKE THE LEAD
Commercial bankers have traditionally used loans and LOCs as lead products to lure relationships from competitors. The fintech era is upending this long-time pattern, as banks include payments in their packages to win business customers.
Emerging data shows that leading bankers are choosing a payments-first approach. With a trusted merchant/payments partner, banks are tied into the A/R stream, providing a strategy to move commercial deposits and loans/LOCs.
The device formerly known as the “credit card terminal” has evolved from a device for accepting cards to a smart, SaaS-based device that unlocks the entire business—including inventory, payroll, rewards programs, employee management, and more. This has shifted the merchant focus to think of this business management tool as the nucleus relationship that most affects its success.
Commercial customers are willing to pay more for the convenience of bundled services, opening up additional paths of non-interest income and core deposits for banks.
Banks need to position the value that merchant services can offer its customers. When you talk about payments and the associated business management tools bundled into the payment’s solution, you are talking about what is important to your business customers.
Finally, banks need to study the recurring non-interest income that a successful merchant program can generate. We share case studies of similar-sized banks that emphasize payments and the long-term financial impact they create.
LOOKING TO THE FUTURE
Banks need to wake up to the reality that fintech can be a threat or an asset. The payments solution is fast becoming the dominant focus of business owners, and having a strong payments solution coupled with the locality and trust of a local banker is a powerful combination that helps small to midsized businesses thrive. Having a fintech partner that enhances your offering instead of competing with a bank can be a key driver of protecting the castle, and growing the kingdom of a strong bank.
Sitting on the sidelines allows other banks, and now fintechs, to leverage payments as the in-road for taking away valuable loan and deposit customers. Community and regional banks have long stood as the most influential partners for SMB. A strong payments partner will help ensure that the future remains bright for these banks, and that small to mid-sized businesses continue to have that combination of modern products and support that ensures they can compete and win against big-box competitors.
More about Celero Commerce
Celero Commerce has provided the latest payments technology and products for more
than 30 years. They work as an extension of the bank to provide the best solution for their customers. With their partners they drive integrated financial services, software solutions, business management tools, and intelligent dashboards to help business clients succeed in today's market. Learn more at www.celerocommerce.com.