B2B Buzz
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B2B Buzz

Is SMB a Vertical…

Spoiler Alert. No it is NOT !

I almost always write my B2B Buzz prompted by something happening or from something I read. Today’s blog was prompted by a Medium Blog

“Vertical Fintech is Reimagining Community Banking with the Help of Next-Gen Infrastructure.” From Emily Man of Redpoint Ventures, a good read by the way. https://link.medium.com/dI6XJi9Iqjb

Jim and Rachel in the picture above do not have the same needs from a Bank. They are both business people and might even have similar annual revenues Jim runs a service business while Rachel runs a retail shop.

Jim has to think about labor rates and how to charge for service, while also keeping inventory and parts on hand. Rachel has to be hyper focused on inventory and likely has no service component to her business. Jim likely has some customers that get invoiced, while Rachel is unlikely to have any Accounts Receivable as her sales are likely handled at a POS and are either cash or credit card.

For clarity of what is an SMB vs Mid or large, this chart from Fortune Magazine about SaaS sales into business shows a good divide. In fairness I am willing to bet neither Jim nor Rachel are approaching the $5M annual revenue level. You could make a good argument for a < $1M business segment with less than 5 employees.

Source: SBA Data from Fortune Magazine

Why is this important? Well my community banker friends need to offer more services to SMBs in order to drive more loyalty and “stickiness” for the bank relationship as digital becomes the method for all businesses. How do bankers combine Personal + Digital? One way is to ensure they understand their customer’s business and that starts with realizing not all SMBs are alike.

Is there a market for a bank offering “SMB Bank Solutions for <Service Business> or <Restaurants> or <Boutiques> ?

I think the overwhelming answer is YES !

I will borrow NYMBUS’s tagline here and say “Niche is the New Local.” Community banks were originally all about servicing the local community, hence the name. So the local car dealer would bank with the community bank as the banker would know all about the dealer and his banking needs.

Digital changed everything !

Banks need to think in different terms as everyone has moved online or even mobile for everything. The local bike shop can now sell their wares across the state or even across the nation. Actually I recently bought a bike from a small D2C bike maker named Dragon even though I love local bike shops, it just made sense do to price and product.

Here is Dragon, a Seattle based bike company offering BNPL or as they call it Ride Now Pay Later with Klarna.

Fintechs are filling in the gaps that banks leave vulnerable.

I have heard bankers say, they don’t care about these types of offerings as they really are focused on SMB loans in the over $500K range.

This is a foolish position to take as I recall everyone saying that alt lenders were a rounding error…until they passed bank lending this year.

Look at this chart from Business Insider Intelligence showing a dramatic shift in lending for Mortgages and loan approvals as well as consumer sentiment to bank’s lending.

Source: Business Insider

Further to the point, every-time an SMB gets a financial service from a Non-Bank, it erodes the relationship between the SMB owner and the bank.

This reminds me of the great quote from the Ernest Hemingway novel “The Sun Also Rises”

“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually, then suddenly.”

Bankers leave their flanks exposed by not waking up to:

  1. Using Digital to offer better service to their SMB customers
  2. Using Data to better understand their SMB customer’s needs and that means finding out what is THEIR business.
  3. Combining Digital PLUS Personal Service to offer the Best SMB Banking possible
Source: Dion Lisle of Forty Grand LLC

The future is obviously digital now is the time to invest in digital services by using your bank’s great local, friendly bank service to offer better SMB services using Fintech offerings to speed time to market.



Blogs, articles and musings about B2B payments including Treasury, CFOs and how payments move from one business to another business and around the world.

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Dion F. Lisle

The Rosetta Stone between Legacy Banks and Fintech. My career is the culmination of working between the worlds of Fintech Innovation and Banks www.fortygrand.co