Payments Exchange


Making Micro Macro

By Cary Whaley

It’s no secret that serving small businesses are community banks’ special superpower. However, when many community banks think about small businesses, they think of the restaurant down the street or a local wholesaler or manufacturer. But there is another layer of smaller businesses—the very small businesses, also known as microbusinesses, that can become solid, profitable commercial payments customers for community banks.

It only makes sense for community banks to build relationships with these microbusinesses through their payments products, which can both identify and better serve these commercial customers. And, of course, today’s mom and pop businesses (which today are often started by recent college graduates) can be tomorrow’s local powerhouses.

A microbusiness can be a woman who sells handmade dog biscuits at the local farmer’s market, a guy who starts a lawn service, or even a Boy Scout troop or other small nonprofit organization. These businesses are often home-based and frequently operate as part-time endeavors, but they are real businesses generating significant incomes and, potentially, transactions.
Microbusinesses have a few things in common, however; their proprietors are usually pressed for time and resources, and recordkeeping is usually an afterthought and oftentimes a completely new challenge for them. Providing them the right payments services can be just what these businesses need to reach their full profit-making potential.

Disguised as consumers

Today, more microbusinesses are starting up than ever. According to a recent survey by Babson and Baruch colleges in 2013, “Americans expressed the most positive views yet about the environment for entrepreneurship around them since the survey started in 1999, and they are highly confident about their capabilities for starting a business.”

However, microbusinesses can be hard for any bank to spot, since often they use consumer banking products like checking accounts and credit cards to handle their transactions. It’s not that they are trying to hide, it’s just that these resource-strapped entrepreneurs are using what’s at hand, which often is their existing consumer banking tools. And consumer payments services, because they are easier to use and understand, can be a better alternative to traditional business banking services.

The first step in identifying very small businesses is to review your community bank’s overall portfolio of customer account transaction activity. Generally, deposit activity will be the first place to look. The dog biscuit vendor may have significant deposits every Monday. Deposit activity for the scout troop may spike annually around fundraising season. A lawn service will deposit a lot more checks than an average consumer, and may even receive some checks or electronic payments from a bill payments service like CheckFree, but regular deposits from Square Inc. or PayPal are a surefire tipoff.

If your community bank’s deposits system has the ability to perform data analytics, you can set up and refine transaction reports to periodically identify potential small-business customers. Such a routine can be a tremendous timesaver, but the most important step is to act on what you find.

Recognizing microbusinesses can mean a lot to emerging entrepreneurs. Raising the profile of your smallest business customers can improve their business results and generate more loyalty for your bank. It can involve something as simple as adding a scrolling banner on your bank’s website that mentions your small-business customers, featuring business customers in your bank’s newsletter or local advertising, or even just posting a small business–friendly sign in your bank’s lobby. Establishing periodic seminars or educational sessions is another way to address their needs and deliver them the right products.

Payments products

Business credit cards are another smart first payments product to offer even the smallest businesses, says Linda Echard, president and CEO of ICBA Bancard, ICBA’s electronic payments services corporation for community banks. “A business credit card can help proprietors keep personal and business expenses separate, and it can provide the right kind of reporting for taxes and accounting,” she points out. This payments product is often an initial banking offering to beginning small businesses from the major financial players too, so countering that poaching threat is important.

Helping a proprietor set up a separate business checking account will improve his or her business’s recordkeeping and give your bank the opportunity to provide the right product. This can also give the customer the right deposit and payments features to manage effectively and give your bank the ability to monitor the business better as well. Keeping business customers separated into business products is also a good way to clear potential regulatory snags over FDIC-insured accounts and your bank’s capitalization requirements.

Similarly a credit card or merchant referral program could also be offered to very small businesses. While the smartphone payments processor Square Inc. may only be nibbling at the edges of your bank’s merchant portfolio profitability, referring small businesses to your bank’s merchant program can significantly enhance the loyalty of small-business customers. A strong loyalty payments program can also help ensure very small businesses stay attuned to your community bank, but a rewards program that focuses on the suppliers they use may be more effective.

Many microbusinesses stay small, but some thrive and grow into small businesses and even big businesses. Such companies should respond well to your community bank’s special superpower—tailoring products to the needs of particular customers. Supporting the full array of small businesses, including microbusinesses, through your bank’s payments existing services can bring solid results. So go put on your cape and get going.

Cary Whaley ( is ICBA’s vice president, payments and technology policy.