Autobooks' Co-founder and CEO Steve Robert joined Tearsheet's Zack Miller to discuss how SMBs are stuck in a banking problem.
It’s really hard running a small business — owners have to wear many hats. Frequently, they’re taking care of sales, operations, customer service and finance all at the same time. You know the expression around kids — that it takes a village to raise them? Well, for a small business, it takes an ecosystem to support it. And that ecosystem should involve its bank.
That’s because the most important thing to an SMB is cashflow. If cash is king, cashflow is the oxygen SMBs breathe. Without it, they struggle to survive. Banks play a key role here
Steve Robert, Autobooks: I think the opportunity to help small and micro businesses is managing cashflow. We do a lot of work around cash flow. We’ve got a team that has really gone deep into this category, and we employ a framework called Jobs to be Done. So, we really get at the root of the pain? What is the problem small businesses are trying to solve?
That’s Steve Robert, cofounder of Autobooks, a software provider in Detroit, with an office in Austin. Autobooks provides software to banks to help them serve SMB customers better, even if a small business doesn’t know the right terminology to use. They know deeply that they’ve got bills to pay and payroll to make every month. Cash is top of mind.
Steve Robert, Autobooks: What we kept coming back to time and time again was cashflow. Now, SMBs don’t use that term per se. But the idea of helping them get paid, helping them compress sales cycles, helping them offer more convenient ways to accept payment was still very much a problem. And it was funny, because when we were raising money and our Series A and even later into Series B, the question of ‘don’t small businesses just use PayPal or Square or Stripe?’ [kept coming up]. The truth is a lot do and those that are progressive and innovative or technically savvy are already comfortable using those tools.
But for many businesses, they’re not yet comfortable using modern technology. And in a way, they’re in no man’s land when it comes to banking. They’re too small to get the attention of commercial banks. And they need more help than just a regular consumer client does. They’re stuck in a problem that they need help solving,
Steve Robert, Autobooks: There’s a huge segment of the population that are second generation family businesses still relying on the cab of their pickup truck as the office for the day. And there’s still a huge dependency on cash and checks. So they really are looking for ways to help them get paid, bringing money into their account. That doesn’t necessarily mean that the services that the bank has offered in the past are the right services — things like ACH, batch management, wire services, FX — those aren’t the services that the smaller micro category needs as much as maybe the mid market larger enterprises need.
So it’s an opportunity to reimagine the services that small businesses need, and ideally help them get to a point that they can get more value out of the existing relationship they have. Put another way, we’ve often used this term that small businesses are stuck: retail is too small, and commercial and corporate banking is too large. And that’s unfortunately oftentimes forced them to have to leave a financial institution to go get line of business services elsewhere.
Finding their way out of this jam, being able to help small businesses with their cash flow needs, probably can use going to the root of the issue and looking at how we got to this place.
Steve Robert, Autobooks: What we found in just a few short years is how consistently people recognize this problem. Underserved small businesses have historically not been given the tools they need from the very place that you would think is most appropriate to provide value: from a financial institution. And I think if you unpack that just a little bit, you’ll kind of quickly recognize that banking is largely doing what it was designed to do.
The system isn’t broken. It happens that when financial institutions started hitting scale, a lot of the energy and focus was on geography, in serving the local communities. And then, with the advent of digital and technology that allowed services to expand, we may have lost a little bit of that personal service in the process. A lot of the emphasis early on was on cost savings.
If banks are doing what they were designed to do, consumer companies like Amazon have raised the bar. People expect better service and experiences from their providers. SMBs want more help and support from their banks
Steve Robert, Autobooks: Consumerization of people’s personal lives has now found its way into small business. People are expecting a lot more out of their bank. So it’s not that banks were neglectful intentionally. It was the state of change and the pace of progress in the last five or 10 years of banking that has just been unprecedented.
It’s a fantastic time to be in this space. Payments are seeing huge progress. And I think there’s still a lot of work that can be done as people now recognize that small businesses aren’t the historical challenge that banks saw them as (a charity case). I think banks are increasingly recognizing that small businesses can be profitable — it’s just the way we deliver services has to be more efficient. We have to reduce the acquisition costs and deliver valuable services so that we can do it profitably at scale.
So banks are changing. 2020 and the COVID-19 pandemic have accelerated the move toward digital for many financial institutions. It also hurt SMBs that look to banks for help. Some rose to meet the challenge.
Steve Robert, Autobooks: We saw a lot of tremendous, heroic efforts in the last 12 months: three years of banking progress done in three months. The banks’ response to PPP was amazing. As an industry, we’ve come to recognize that we don’t have to rely on the status quo, the way we’ve always done things: the heavy paper base, the manual and lengthy digitization, the remote tools and capabilities. I think that was something that we really saw front and center during COVID: banks that had already made investments in digital were better positioned to accelerate through.
We were very granularly tracking the small business experiences during COVID. And we were waiting for the bottom to fall out — we saw it happen right in front of our eyes with folks that had point of sale dependencies and retail customers with in-person transactions. But what we also saw was those that were already embracing digital invoicing, online payment tools, and the internet banking experience itself, were generally more insulated from some of those challenges because they were finding ways to still get paid and deliver services.
But even with these investments, some banks serving SMBs are still early on in their digital transformations. They lacked basic functionality, and that impacts their customers.
Steve Robert, Autobooks: In the end, I think there’s more that needs to be done. There’s still generally a lack of digital account opening for businesses to enroll in online services. Neobanks and challenger banks are increasingly looking to disintermediate financial institutions if they don’t provide very compelling products and services that customers are asking for.
Some banks, though, get it. Challenger banks, for example, are using technology to address SMB needs around cashflow.
Steve Robert, Autobooks: Digital banks are doing quite well. Radius Bank and nbkc are examples where they’ve embraced technology. They’ve been growing a non-physical presence and been quite successful in this new era of digital businesses.
But I think even some of the larger financial institutions that have more resources are also doing some compelling things. Chase, just to pick one, has recently announced a product called Quick Accept that is important on a variety of levels. It really puts a stake in the ground around making payments for businesses a first class citizen, making it easier for their small businesses to get paid and bring money into the account where so much in banking historically has been focused on moving money out. Several million Chase users are able to start accepting payments as an extension of their digital banking app. We expect that to be a standard that many other financial institutions begin to offer their customers.
For its part, Autobooks works with financial institutions to offer their SMB customers digital services. With Autobooks, banks can offer SMBs help with cashflow and invoicing.
Steve Robert, Autobooks: It really starts with the experience. The small business market is very fragmented. And our vantage on it is banks have a lot of small business depository accounts, but they’ve historically kind of struggled because small businesses are too large for a retail or consumer account, and in many cases, too small for that treasury / cash management service that large, up market or mid market financial institutions provide their larger customers.
In what Autobooks does, we try to take the Treasury and cash management services and bring it down market — things like invoicing and payment, just providing a very organic onramp, so that a small business that might have just opened up their first business checking account, and may be close to their first sale, they need help, they need to know where to go. The industry historically has attempted to sell them Treasury products, so mids and tids and lids and other jargon that the industry understands. But for a lot of small businesses, finance isn’t their number one priority.
Autobooks really tries to lower the barrier of entry to allow small businesses, family businesses, lifestyle businesses to gain access to powerful tools to help them run their business. It could be something just as simple as giving them the ability to send an electronic invoice directly from within their bank’s website. They don’t have to go download software. They don’t have to go sign up for third party services. Those invoices can be paid very quickly and easily online from their customers.
Keep in mind, these are oftentimes small businesses that haven’t historically offered online payments, or even the ability to get paid by a credit card. So as you can imagine, in the last year with COVID, this has been a huge gain for banks being able to offer digital services for small businesses. We’re increasingly looking for ways to get paid online and shift from offline paper checks cash into an online digital banking experience.
Getting paid is a top priority because it’s a central part of the cash cycle. Banks’ best customers direct deposit their paychecks into their bank accounts, and banks can offer similar functionality to businesses and their customers.
Steve Robert, Autobooks: For us, it really starts with the invoice. We’re all aware of the ability inside banks to transfer funds and pay a bill. But the thing I think that’s been historically missing in the area that we’ve seen the most significant growth in is the ability for small businesses to accept online payments.
At the end of the day, the bank has these tremendous relationships. They’ve got the deposit, and they’ve got an active customer base. So the features that they’re increasingly missing historically that more innovative banks are beginning to offer are centered around that the ability to get paid online. Many times, that starts with a digital invoice.
Other things that they’re increasingly leveraging is the ability to accept a payment inside of the banking app. So imagine you’re in the field and somebody hands you a card. You can enter that information very quickly. And the power here is that it’s deposited directly into the small business’s bank account. So it’s not in a held away account. It’s not in a non bank provider that you’ve got to transfer and then later reconcile, but the convenience and simplicity of having it embedded inside of the banking application, managing your customers, sending invoices, processing payments, and using online payment forms to get paid when an invoice may not make sense.
In summary, small businesses love it because it enables them to accept online payments from customers when those services were not widely offered by financial institutions. Conversely, financial institutions love it because it helps them generate income, and helps lock in that customer deposit, that relationship and that primacy.
In addition to banks like nbkc and Radius, Autobooks works with TD Bank, one of the largest banks in the US to provide online accounting tools to its SMB clients.
Steve Robert, Autobooks: TD Bank is a traditional bank that’s got a sizable footprint. It was pretty provocative, running an RFP with us a few years ago, that we were lucky enough to win, around an integrated accounting experience. TD Online Accounting is a product — they’re the first large, top 10 bank in the country to offer internet banking-based receivables and payables and accounting — all provided as an extension of the bank’s checking account.
SMBs run the gamut in terms of their needs. So, some banks’ SMB products go much deeper than others. There’s a growing focus on helping business customers around their payment cycles.
Steve Robert, Autobooks: A consistent theme is receivables. The ability to offer invoicing is really tip of the spear, because in many cases, small businesses can’t run or even walk if they’re not yet crawling. Many small businesses are still sitting at the kitchen table on a Saturday night, trying to keep their arms around their business and understand their cashflow and reconcile — even if that just means looking at aging receivables or understanding who still owes them money. It doesn’t necessarily have to mean running an income statement and balance sheet at the end of the month.
But if they do have tools that can increasingly automate that, give them the benefit of a fiscal discipline with respect to understanding budget, to actual basic financial tenets, they’re that much more likely to succeed. They’re that much more likely to be eligible for working capital loans from their financial institution or have the hygiene in place to be able to manage their growth and related expenses. Certainly, the receivables is a piece that helps businesses increase cash flow. That’s the lifeline.
Helping SMBs wrap their hands around their finances means increasing their chances of survival. Little changes can have big impacts.
Steve Robert, Autobooks: Having the ability to reduce your day sales outstanding and give your customers more convenient ways to pay you generally translate to higher customer satisfaction because you can get paid in ways that consumers increasingly want to pay. And I think that’s an important byline here — that even though small businesses haven’t historically accepted credit cards online, customers do want to pay. They want the loyalty, rewards, and the points.
Banks can increasingly step in to provide services for small businesses to get paid the way their customers want to pay them, and then have the funds actually arrive in their business checking account, without being held. Or, with some of the challenges associated with payment systems outside of the bank, give them confidence, give them the ability to receive support, which is a really unique competitive advantage banks have. You can walk into a branch and talk to somebody. You can call an 800 number and get service. And when you tie those things together, I think you’ve got a formula for some really compelling capabilities to be able to serve the next generation of customers.
SMBs’ needs are changing, but so are the institutions that serve them. There’s a growing openness of many financial institutions to partner, to work and integrate with third parties, giving their customers the tools they need.
Steve Robert, Autobooks: Through consolidation and M&A, lots of banks are reevaluating their platforms. Are they aligned with the right digital platform? Is it flexible and scalable? And will it continue to support their future needs? How does it play nice with third parties? Is it pluggable or extensible so that a company like Autobooks can be integrated and deliver a compelling experience inside of internet banking to help the bank leverage innovation without some of the historical challenges associated with such integrations?
I still think deposits have a big role to play helping small businesses accept online payments for their customers as a default. And maybe, to put it another way, the ability to help small businesses build what is essentially a direct deposit relationship, much like what consumers and retail customers have had inside of banking, as those small businesses are sending invoices and getting reoccurring payments — it’s a really sticky and really high value relationship for the financial institution.
Helping SMBs can also be good business. Technology integrations with fintechs can help to lower costs and serving small business customers.
Steve Robert, Autobooks: I think what we’ll likely see in the years to come is invoicing and payments to be just as ubiquitous as what we saw bill pay or remote deposit capture to be. In our opinion, it just makes sense to have both the receivables and the payables under one roof. And ideally, the accounting allows the integrity to be very high so that the bank can make even the smallest customer increasingly profitable. And, of course, the relationship and satisfaction small businesses have with their financial institution to provide contextual, digital and innovative services, we think is a powerful formula for the future.
Autobooks is powered by Microsoft Azure for financial services.