In this live episode of Banking on Community from CX26, Tara sits down with Pam Kaur and Derik Sutton to unpack a hard truth: small businesses aren’t leaving banks—they’re just getting what they need somewhere else.
Tune in to hear why helping businesses get paid is the first step to winning them back, how “hidden” small businesses are already sitting in your portfolio, and what it really takes to become part of their day-to-day operations.
Transcript
Tara Schultz (TS): Give the people what they want. All right, everyone. Welcome to a live recording of CSI’s Banking On Community, coming to you live from CX26, a sellout show here in Denver with 1,500 of our favorite customers, our future customers, partners, and consultants, and analysts. Usually, I have a podcast partner in crime to keep me on the rails, but they’re both busy. One with a customer, rightfully so, and one with a new baby. So big congrats to my podcast partner in crime, Saxon, on a new journey in his life. But I do have two awesome guests with me today at the center of one of the most talked about conversations in banking right now, and that’s really becoming a bigger part of your customers’ financial supply chain, your customers’ financial lives. With me today is Pam Kaur from Alloy Labs, Head of Platform. Did I get that right?
Pam Kaur (PK): Yeah.
TS: Where she works with a consortium of community banks, mid-size banks, to turn innovation from concept into execution. And I have with me Derik Sutton.
Derik Sutton (DS): Hey.
TS: At AutoBooks, Chief Marketing Officer, who helps banks embed payments and cash flow tools directly into the small business experience every day. Thank you both for being here.
DS: Thanks for having us.
TS: What’s the experience been like?
PK: It’s been a lot. It’s been fun, crazy, loud, hectic, exciting. All of the above.
TS: You must be talking about the music last night.
PK: Yes.
TS: A little Brett Michaels and Chris Jansen.
DS: Yeah. It was great. Honestly, logistics, A+ for this conference. Local airport, ride into the hotel. Hotel’s great. You guys always do a phenomenal customer event, best in the industry. So, very, very fun.
PK: Cowboy hats next time.
TS: Okay. All right. Noted. Noted. All right. Let’s get into it. So community banks have the trust, they have the presence, they have the relationship history that fintechs really have spent billions trying to replicate, and really too many banks are watching some services and some payments drift towards outside tools, like Stripe and QuickBooks and Square, for the financial services that their bank really could be providing. So in other words, they’re sitting on a financial gold mine in their backyards, and we’re calling this the small business financial flywheel because when community banks really get this right, everything compounds. So better data leads to better experiences, better experiences lead to deeper relationships, and all of that creates the real sustainable growth that we want to see out of community financial institutions. So let’s dive in. Derik, we’ve had a conversation many times about this. So what’s hiding inside community bank portfolios? And those small business customers that are really running inside of a retail experience, they’re not intending to hide or be invisible. Talk to us about what you see happening there.
DS: Yeah. The common analogy I always give is small businesses are like water, and they’re just going to find the path of least resistance. They’re going to go and do whatever it takes to accomplish the job, or get through the day, or collect customer payment, and if that means I can pop into digital banking and it’s one click to open an account, even if it’s a consumer account, they don’t really think about it in the terms of, “Well, I need a business structured account.” I’m popping in. You’re my sister-in-law, Emily, who started a photography business, and at the end of the year, the CPA said, “You should separate your business from personal taxes. You need another account.” In digital banking, it was just add account. She didn’t think to do the formal business thing. There’s a ton of Emilys out there. For about every one personal account in digital banking, about 15% of those are small businesses or exhibit micro small business behavior. Small businesses are the lifeblood of local communities. It’s like an anthill. You step on them, and they’re almost everywhere in all different forms and fashions. So the hard thing to do is get your mind around how do you bank these individuals well when their characteristics or needs aren’t traditional business? And so I think this digital-first, self-service, easy to enable tool set is the way to go about that market.
TS: So we’ve talked about banking data in the past. So the deposits, the loans, the payments, but small business value, what else is being overlooked outside of business data, the banking data, and how can banks start to really connect those dots?
DS: Yeah. Operating data.
TS: Operating data.
DS: So I think you’re going to start to hear that a lot more, there’s banking data, that’s transactional history. History being the key word. It’s what happened in the past. And you don’t really know what’s coming next. Operating data actually tells you, okay, the business owner has a balance at this point in time. They have bills scheduled to be paid, and these are the expected expenses over the next 30 days. They have four invoices outstanding to clients. Customer one pays on time, customer two’s always late, customer three and four are fine. So the operating data actually informs what the balance position of that business owner is, not only in a point in time, but 30 days, 60 days, 90 days. Is there a seasonal trend coming in? So I think what banks have to do is we have to figure out ways to get not just the transactional activity inside digital banking, but we also need more intelligence about how the business operates. So it’s connecting receivables, payables, accounting, lending all together with digital. So that becomes the new bank account moving forward.
TS: Yeah, I think that’s really well said. So the first part is reclassification of what’s already there.
So really narrowing in on that opportunity that sits within the landscape of your bank, and it’s just simply hiding as a gold mine of additional deposits, additional payment fee income opportunities. So that’s first and foremost, and then expanding your piece into the operational workflow in whichIn which they need you to be. So Pam, you work with a consortium of community banks, mid-size banks at Ally Labs. You see what banks are really prioritizing. From where you sit, what’s the gap between really how banks think about their small business customers and what those customers really need?
PK: Yeah. So I think going back to the whole data piece and what we’re looking at there, I think there’s an abundance of data, but I don’t think we actually know what questions we should be asking, so we can then figure out what to do with that data. Just stepping back from the whole deposits thing for a second, I recently wrote an article on Forbes with MidDust data backing some of this up of how post-COVID, the rise of the solopreneur, opening accounts has risen by like 80% from what it was prior to, and whether banks are actually accurately doing risk management around those account types based on this micro-business type and how are we then serving that specific type of entrepreneur, whether it’s coming through a retail account or a traditional small business bank account. So I think that is something to consider in this entire purview too, of are we even classifying them in the correct way just based on what their trends might be, what their business history is, what their deposit and transaction flow history is, etcetera. So aside from that, we actually recently did a session called the Retail, or sorry, the Relationship Banking Paradox, where, of course, we, as community banks, relationships are remote. But I think one of the things that we kind of uncovered in digging a little bit deeper into this is that the relationship lies with whomever the relationship the person has without the bank. So, the relationship is not with the bank itself, so how do we then protect those things from moving beyond us? I have this great quote from Jack Dorsey from a recent Square’s earning call where he said businesses over 500K are their fastest-growing segment. It was up 24% year over year with the mid-market Square banking accounts, averaging 35,000 in deposits. So these customers were easily able to switch over to a competitive banking product where they could get everything they need digitally. There was no real relationship there. In that case, they do have the relationship with the institution because it’s providing them a better digital experience, probably better customer service. You likely have some sort of 24/7 availability, unlike a traditional community bank. So I think knowing what our customers are actually looking for and trying to match up what we can offer them based off of that and what we have in the data, rather than, “Here are all the things that we can offer you. Where can we squeeze you in?”
TS: Well said. And you mentioned the 500K of their annual revenue. Derik, how many small businesses, I mean, no pressure-
DS: Yeah
TS: … but I know you know this stat. How many small businesses are under that million-dollar revenue?
DS: 82%.
TS: 82%.
DS: Yeah.
TS: And I was just with Datos Insights. We did some work with them recently, and 71% are using some sort of non-bank fintech partner that is sitting and flowing outside of your institution. And of all the small businesses, I think there was 1,006 small businesses nationwide interviewed. 85% of them wanted to get it from their local bank. So that’s definitely a cry for bring it in, be a part of my operational workflow. And I’d rather leverage it as well where the relationships know me. So Derik, you work a lot with small business solutions. So quite the expert here. Where do you see the friction in the customer experience landscape there?
DS: As probably one of the great philosophers of our time, Bret Michaels, said last night.
TS: Yes.
DS: Every rose has its thorn, Tara. And I think the thorn in community banking is small business. And I say that because it’s quietly been disintermediated underneath banks for the past, let’s call it five to seven years, in a way that I don’t think is fully appreciated. So it started with Square launching a dongle, and then it’s moved on to now you’ve got the PayPals of the world. QuickBooks, you may not realize, but QuickBooks is more than an accounting platform. It’s a full banking product suite now. They have a checking account. They have receivables. They have payables. They have lending. They’re the fastest-growing business checking account opener in the US. They have 500,000 business checking customers. That’d make them a top 10 bank. And so what we’ve done is we basically have gone out to small businesses and said, “Just use whatever tool. As long as you connect it back to your bank account, we’re fine with it in the industry.” And that’s lost the deposit connection to that customer. And so the challenge that I say to every financial institution and the thorn to erode or erase or whatever is you have to start with how a business gets paid. It’s like locking in the direct deposit relationship of a consumer. When a consumer opens an account, what do you do? Who do you get paid by?ACH, EO.
TS: You want their direct deposit first.
DS: You want the direct deposit. You need the same thing for a business owner. So if that’s I get paid through merchant, where’s your merchant solution? If I get paid through invoicing or a payment link, where’s that solution? If it’s ACH and wire, lead with that. But you have to lock in the way the business gets paid, so you lock in the operational deposit that then you can lend against and build a relationship around.
TS: So what do banks believe they’re doing well today, but if you hand this mic to a small business owner, what do you think they would hear?
DS: Yeah. Small business owners want education, and they want to be informed about what capabilities and functionality is offered by a financial institution. But for whatever reason, marketing’s a four-letter word in banking. I don’t know why, but marketing is, it’s a calendar, it’s CD rates, it’s loan rates, it’s very consumer-focused. It’s the same kind of business, general things of like, we’ve got your back. Community banks really feel a connection to small business owners, and you can sense that, and you can feel that, but the reality is they don’t always offer the tools and the capabilities to educate that part of the market becauseThis is not to be mean, but 82% are under 500,000 in annual revenue. They don’t see there’s a big revenue opportunity there.
TS: But how fast are they growing?
DS: Yeah, but they don’t want the servicing costs. But there’s ways you could actually monetize this customer base if you do it really well, that’s beneficial for the end user as well. So I think we have to find that sweet spot of helping them get paid and then using that operational data we talked about earlier to lend when appropriate in an intelligent way.
TS: Well said. Let’s shift to insight to execution. Pam, you work a lot in this space, so what are you seeing on what makes a difference on a pilot between one that dies and one that ends up being a real capability driving value?
PK: Yeah. I think it’s when the bank has actually formed some sort of strategy and then is tying their innovation efforts or whatever they’re piloting or trying to bring onto the bank within that actual strategy and trying to match up, hey, this thing is going to bring us this KPI, this is what we’re measuring against, this is what we’re looking for, this is the end result we want to have. Rather than oh, we’ve heard from three of our customers that they don’t like our X digital experience, we need to reshift the whole thing, but without actually realizing. I worked at a bank for almost a decade. We had this also of we’d get customers coming and saying, “We don’t like this.” And then someone from the relationship area would come and then come down to IT in the basement and say, “We need to fix this.” And then we’d go back and actually look at things and discover that we already do have this capability, we just haven’t enabled it, or we haven’t activated it for this customer or whatever. I think there’s just a gap between what a strategy is versus we want the new shiny thing that’s going to attract the one next customer versus how are we actually using this to go approach different markets, expand in our current market? How are we actually tying it into what our bank’s overall strategy is rather than just compartmentalizing we want to increase this thing or we want to get this thing better. Also with that, again, going to go back to the IT in the basement thing as a sore subject. Having executive sponsors that can actually lead the projects and actually have some sort of say in where the project is going, not just three people hoping that the CEO is going to finally approve the thing that they want. Somebody that’s working on this and leading and guiding it that actually can follow through to the end with the project has been the most successful.
TS: Awesome. Well said. And I think that pilot purgatory, we see it all the time, but it’s getting really, really clear on that end deliverable and how you’ll measure that value that is attracting those customers, keeping those customers. So Derik, if a bank could invest in one capability, narrow it down to kickstart that small business flywheel, what would it be?
DS: Helping them get paid. I can’t say it enough. I think the thing that I would put an exclamation point on it is I think we’ve reached point or peak point solution in banking. I think just acquiring a bunch of point solutions that aren’t integrated into a cohesive strategy is really to the downfall of banking in many ways because we’ve proliferated the amount of products and services. And you look at a community bank’s website, and it’s like at The Cheesecake Factory menu.
TS: Sure.
DS: It’s like all of the options that you can pick from, and how do you actually keep people up to date on what’s out there and available? You’ve got to narrow it down. I think the way that a business owner gets paid needs to be very similar in how just bill pay and RDC is just considered to be part of checking today. And so I think integrated tools to help small businesses get paid should just be part of checking. And moving forward, access to accounting and lending and cash flow tools should be part of a premier business checking account. Because if you’re not supplying the tools that a business owner needs to manage their day-to-day, you’re going to lose the day-to-day connection of that customer. It’s just natural.
TS: Yeah, absolutely. And giving them exactly what they want, that real-time visibility into their cash position, and not making it a nighttime task that takes them away from everything else they have to do.
DS: They’re looking for simplicity.
TS: Right.
DS: I come from a family of HVAC workers, and they don’t wake up thinking about their banking relationship. They wake up thinking about the jobs they need to service, meeting payroll, growing a business savings account. And so they’re looking for tools and simplicity, and they don’t want to have to use an app for this and a bank account for that and a tool for that. They want it all from one provider. And so if you want to start at the low end of the market and grow and graduate them into an actual treasury client, you’ve got to provide the full suite for that small or micro business, because with the advent of digital, every SaaS application can now embed banking and become a competitor for the financial institution.
PK: I wanted to add something to that, too, because that’s the whole capturing the treasury customers before they are a viable treasury customer has been a very hot topic for us lately, just as we try to help banks figure out how to grow deposits. So kind of going back to that point of the rise of the solopreneur, how do you give those types of customers the tools that they need to start their very, very small business as a solopreneur? And then how do you then capture that as you go forward and eventually, hopefully onboard them as a treasury client? So totally.
DS: You want a fun stat? There’s more businesses formed-
TS: I love fun stats
DS: there’s more businesses formed in the US daily than there are babies born.
TS: Wow.
DS: Whether or not they become successful or do anything is-
PK: Talking about the baby or the business?
DS: Probably both.
TS: They’re both hard. I speak from experience.
DS: But I think that’s something interesting that the bank could think about of, like, okay, well, how do we capture this market? How do we market to this growing base?
TS: Yeah.
DS: And then those that do end up becoming full on businesses, then you’ve already established the relationship. You help them to get from zero to one. That’s a great way to establish trust.
TS: For sure. Becoming part of that operational, not just the transactional aspect- and how we used to look at serving a business and taking little pieces of the transaction, but truly getting in the operational workflow of their environment is key. So my fintech-with-heart gal, that’s what we tag you, right?
PK: I love it.
TS: I love it. How can community banks modernize without losing that relational difference that really sets them apart?
PK: Yeah, I think, as much as we kind of laugh at us saying that community banks’ moat is relations, I think how we need to look at that is we digitize or digitalize, one of those, modernize our technology, and make more data-driven decisions, but then enable the people that are working in those front office facing positions to actually go and do something with that data, like encouraging that sales culture and creating that to be your competitive moat rather than just, we’re friends with who we golf with, and they’re our customers, or we’re going to funnel everybody into this digital thing. It’s still how do we get to know what the priorities of our customers are, and how do we make sure that we continue to serve them and proactively reach out to them with opportunities based on what’s going on in their transactions, what’s going on in their business, do they need a loan? The data that we’re seeing, and then actually being able to take action on that and having it be more personalized. I hear this often from my friends in New York City, that they get offers for auto loans, and they’re like, “I haven’t owned a car in 10 years.” So it’s like actually having somebody sit down and figure out what these people actually need, I think keeps that, like there’s actually a real relationship here in sight.
TS: Absolutely. Nothing turns them off faster than an offer that lands in their lap that isn’t relative-
PK: Yeah
TS: to where they are in their life. So it’s key of that data intelligence is massively powerful. Speaking of, you were in HVAC. It’s kind of hot in here. Can you fix it?
DS: Yeah. I will. I’ll call my brother.
TS: All right. Rapid fire. If you were sitting across a desk from a CEO of a $2 billion bank, what advice would you give them right now on how to make progress- in this landscape?
DS: Proximity creates empathy, and I think that in community banking, we’ve lost proximity to the customer because of digital. And so when customers aren’t coming across our desks like they used to, the bank used to be kind of the central place of whenever, speaking of HVAC, when my Grandpa John was running the HVAC business, and Grandma Bobby ran the back office, and I would go ride in the truck and go collect the checks from the team that was in the field, and I would bring those back to her, and then we’d go to the bank and make the deposit, and there’s a personal connection. And during that transaction, if there was something that she had a problem or an issue, the banker could see the pain on her face or the delight, right? In digital, that kind of goes away. I would just tell community bankers, you have the proximity advantage over QuickBooks, and PayPal, and Square. Go back out into the field. Make it a priority to send your banking team to go ride in the truck of an HVAC worker and go through their day-to-day and understand where are their pain points when it comes to financial management, banking, how can you help? But just get a little bit closer to the customer. The ideas and the opportunities will flow naturally from there. You guys are all great entrepreneurs, you’re great business builders, but you got to get back in front of the customer.
TS: Did you just get through that without referencing JTBD?
DS: I think I did.
TS: That’s jobs to be done
DS: Barely
TS: All right, Pam, what about you?
PK: Yeah. I think mine would be a conversation around the fact that it’s been several years now that all I hear is data, digital, deposits. So I think it would be a kind of a come to Jesus type of moment with this bank CEO of who at your bank is actually leading these initiatives? What are you actually hoping to accomplish? And I think most importantly, in my opinion, just because I’ve been in this industry enough and been exposed to hundreds and hundreds of community banks from the work that we’ve been doing, and then ask them, is this person that you’ve put in charge of this actually the best person to be doing this job? They might’ve been your best salesperson that somehow has moved up to your head of commercial or whatever, but are they the one to then strategically actually bring you to the next level? I think that’s a very difficult decision in this industry for us because we are so relational. And people spend their whole careers at community banks, so I think being able to step back and see is the person that you’ve put into this role to do this thing actually the best person.
TS: And do you have the data?
PK: Yeah.
TS: You say it’s important, but- if you’re missing chapters of that book, what good is that data doing as far as moving that relationship, that business forward? We’re going to wrap it up. So one investment that’s generally worth it, whether in tech, people, or process, where should a bank spend? And you can’t say your own solution.
DS: Yeah.
TS: I mean Except me.
DS: I’m going to let Pam go first.
PK: Okay. I’m going to answer back with kind of the thing that I was just talking about, the people. I think being able to bring in different experiences, people with different backgrounds, people maybe that are outside of the banking industry that have certain expertise on how to grow lines of business that might be different from the people that you have grown up through community banking, I think gives us a different perspective. Even if it’s, I’m going to hire somebody for a year to come in and consult and help us figure out what business we should go into and how to grow that, I think being able to spend money on something that educates your existing staff and helps grow that internal knowledge, I think would be the best investment.
DS: Ooh, I like it. I’ll build on that. I think investing in customer education and doing it in a creative way. I think community banks, they should actually be the social media financial influencers.
Why not? Why do these random people on TikTok get to own the narrative? I think you have more interactions with customers. You kind of know finance better than anybody. Start a webinar series around how to manage your business, and try to get customers in. Get more active on social and on LinkedIn. Do something fun. I don’t know. Educate those customers.
PK: Should we start a TikTok?
TS: Wonderful. You should.
PK: All three of us.
TS: Fintech with heart, hashtag.
DS: Yeah.
TS: All right, well, I hear a bell, so you know what that means.
PK: Party time.
DS: I do know what that means. It’s an inside joke.
TS: Okay, we’re going to wrap up. These two have a panel to get to. So thank you for being here. Thank you for sharing your insights on all the ways that you’re helping community banks improve in the small business flywheel creation, because this is absolutely important for their relevancy, their growth, and their future. So we’re here to help. Thanks for being here. Sorry, no Bret Michaels tonight, but you better get your apres-ski gear out because we have another party, and CSA parties do not disappoint.
DS: I have my Dumb and Dumber ski outfit.
TS: Yes.
DS: I’m good to go.
TS: What do you have, Pam?
PK: A flight home.
TS: Lame.
DS: Lame, Pam.
TS: Give the people what they want, Pam. That is what this podcast is about. All right, well, thanks so much for being here.
PK: Thanks for having us.
TS: Let’s head to the panel.