With Har Rai Khalsa and Andrew Hwang
Since the onset of the COVID-19 pandemic, we’ve seen a huge boom from the gig economy, companies embracing remote work, and people re-evaluating their careers and future. Inspired to start their own businesses, entrepreneurs have limited options to easily open a new business account without in-branch, lengthy application processes.
Nowadays, everything is digital. Remember, businesses are consumers, too! Understanding the need for intuitiveness and speed, neobanks and fintechs took the same concepts used in consumer experiences and applied those to business account opening. This real-time capability is very appealing and can rarely be found within traditional financial institutions’ (FIs) legacy systems.
What challenges do FIs face with business account opening?
It boils down to the same barriers FIs face with retail account opening but multiplied by each business owner. FIs have to verify the identities of all the parties (including beneficial owners), ensure all co-applicants are documented, verify the business with the Secretary of State database, and perform Office of Foreign Assets Control (OFAC) & Bank Secrecy Act (BSA) compliance. The next hurdle is getting applicants to complete their stipulations – uploading articles of incorporation, driver’s license, balance sheet, profit & loss, bank statements, business license, etc.
Legacy players have maintained the same complexity throughout all of their digital offerings – causing immense friction for smaller businesses getting started on their entrepreneurial journey. To add to this, the due diligence process cannot start until the application is completed by all business owners – increasing the decision time and potentially damaging the banking relationship.
Business banking has more complex processes for just about everything, and smaller FIs do not have the budget to justify business account opening. Traditional account opening methods are costly due to the time-intensive, manual labor associated with processing the application designed for large-scale corporations. Many FIs do not have the capacity to support manual, non-digital onboarding. However, if an FI is considering expanding into business banking, it is imperative that they partner with a vendor who also supports business account opening to drive user acquisition.
What opportunities do FIs have with business account opening?
Business account opening kicks off the relationship lifecycle. Offering a seamless integration with digital banking is crucial and must be utilized to drive cross-sell opportunities for FIs. A number one success metric that banks and credit unions should attach to is the number of products per business user. There’s a large revenue opportunity for FIs with business account holders. Relative to consumers, businesses spend more money and have more deposits – bolstering an FI’s lending capacity and revenue opportunity.
With the rising concerns of a global recession, diversifying an FI’s balance sheet is executives’ top priority. Diversity in a balance sheet is not just a diverse array of assets – cards, vehicle loans, mortgages – but also different types of financial products for different types of entities – consumers and businesses. Because of this, we will see more credit unions moving into small medium-sized business (SMB) account opening and loan origination.
While there could be a deep recession in the consumer space, businesses could hang in there. If FIs have a strong business portfolio, that could serve as a saving grace through difficult economic times to offset some of the challenges, defaults, or lack of liquidity in consumer deposits. This market shift, coupled with the demand for digital, has amplified the need for a single partner serving all of an FI’s online banking needs.
What is the role of mobile today and in the future of account opening?
The next generation of entrepreneurs need an application that is digital-first versus in-branch. When people walk out the door, we all grab our phone, keys, and wallet. To stay relevant, FIs need business account opening that’s mobile-first and accessible. In Alkami’s business workflow, each business owner receives a link to complete their portion of the application wherever they are. This enables them to be on the go and apply anytime, anywhere, on any device (phone, tablet, or desktop) – freeing up more time for them to focus on running their business. Using mobile devices allows the FI to capture the business owner’s IP address and time stamp when the applicant signs their agreements, strengthening FIs’ compliance stature and creating more audit-worthy transactions.