UPDATE: This article includes comments from Hello Alice.
Payment companies are carving out space in providing data analysis to small businesses, an area largely ignored by the big banks and where fintechs are making gains.
Micro, small and medium businesses, because of their range of needs and more conservative budgets, pose challenges to data providers. To get payment analysis, these businesses have been turning to fintechs.
In fact, while 67% of small businesses look to their retail bank as their primary service provider, more than half supplement their primary bank with one or more fintech offerings, according to research from Arizent, American Banker's publisher. In some cases, small and medium businesses are forced to find a secondary provider because their primary bank doesn't offer the service they require.
In addition, about 75% of small businesses use digital tools daily, according to a May 2023 report from Mastercard. A quarter of those businesses say they use six or more digital tools daily.
That landscape has paved the way for some of the largest payment companies in the U.S., such as JPMorgan Chase and Mastercard, to put an increased focus on SMBs with the launch of new tools that leverage their respective networks to provide insights to small-business owners.
JPMorgan Chase earlier this month launched to its 5 million small-business banking customers a business intelligence tool called Customer Insights, which uses payment data to offer competitive analysis.
Chase considers the product "a game changer" for its SMB clients, said John Frerichs, managing director and global head of small business payments at JPMorgan Chase.
"We are the largest payment processor by volume in the U.S., so we have a massive amount of data — literally millions of transactions — that we are able to view and then anonymize," Frerichs said.
Small-business owners that process payments with JPMorgan can see reports from their own data on customer demographics, such as the age of the customer or the zip code they come from, or when to staff to meet high traffic, at no additional cost. For SMBs that don't process payments with the bank, JPMorgan offers a "look-alike" model that provides anonymized insights into similar businesses that also serves a key up-selling opportunity for payment processing services, Frerichs said.
Cullen Fuller, co-owner of Meredith Jaye and M & Em's boutiques in Chicago, said on a Chase website that "Customer Insights allows me to map the schedule back to our busy times and has allowed us to shave about 5% off of our labor numbers." Fuller said the tool helped save 20% on weekly payroll expenses.
Mastercard this month also launched a new SMB insights tool that leans on its vast network to offer a white-label, software-as-a-service business intelligence solution called Biz360 to its platform partners.
"SMBs have been traditionally underserved, in part because they sort of fall between consumers who are the focus of a lot of attention of financial services players and others, and large corporates who kind of qualify for white-glove one-on-one treatment," said Jane Prokop, executive vice president of small and medium enterprises at Mastercard. "Small businesses are sort of in the middle."
Mastercard is targeting its platform partners that serve small businesses rather than the small businesses themselves, Prokop said. "There's a wide range of players with whom we have worked in the past and where we're doubling down now in our partnerships with them, because our goal is to provide products to our partners that they can turn around and use to better serve their SMB customers."
Hello Alice, an educational platform that connects SMBs with grant and lending opportunities and has 1.5 million SMBs registered on its platform, is Mastercard's first customer in North America. Prokop said there are also a wide range of use cases for fintechs, neo-banks, digital wallet providers, payment processors and gateways, credit card issuers and acquirers, and other financial institutions as well as nonbank platform providers to offer the service to their clients.
Small businesses on Hello Alice's platform are "constantly vetting new tools, trying to ensure that one syncs with the other, and juggling the management of multiple interfaces," said Carolyn Rodz, CEO and co-founder of Hello Alice.
"Ultimately, SMB's are looking to manage time and discover insights that help them grow. Entrepreneurs have to jump between the various aspects of their businesses to build healthy, solid foundations – and that includes sales, marketing, finance, fundraising, cybersecurity and so much more," Rodz said. "These are the fundamentals of how we assess how healthy their businesses are, and to ensure they're looking broadly at the fundamentals of their businesses because our research shows that when businesses have a strong baseline for growth, they're significantly more likely to sustain operations."
Biz360 integrates tools that SMBs are already using — such as Quickbooks for bookkeeping — into a single place. It also provides additional insights about their business that SMBs wouldn't be able to see otherwise, Prokop said. There are billing, payment and invoice tools as well as marketing and customer acquisition functionality.
"Everything [SMBs] do is generating data," Prokop said. "Most of the time, though, they can't see it, so [Biz360] is giving them visibility into their own data, which they, by and large, don't have. That helps them understand where they have weak spots, where they're doing well and course correct on how they operate the business."
Both JPMorgan and Mastercard are responding to an influx of SMB-focused fintech offerings that threaten to continue moving up-market if left unchecked, said Tony DeSanctis, senior director at Cornerstone Advisors.
"I can remember 10 years ago when I was at the last bank I worked at. We never really cracked the nut on how to be successful in what I would call small and micro businesses," DeSanctis said. "The fintechs have done a great job of adding ancillary services and capabilities that make it so that the primary reason you do business with them is not price, not interest rate, it's not fees.
"Unlike consumers, who basically want everything for free, small businesses are willing to pay a premium if it means that you can free them up to do whatever for their businesses instead of the back office."
Block, Divvy, Ramp and Brex are all examples of fintechs that have been focusing on small and startup-sized businesses, he said.
Customer expectations have also changed, DeSanctis said. "You can go to any bank and get a business checking account. But you can't go to any bank and get the kind of service that a Square is providing, or even some of the tools that the Brexs and the Ramps and some of those other folks are providing, which is why I think you're starting to see recognition by [larger] financial institutions."
The shift in strategy also makes good on a promise to leverage data that payments companies have been making for years but "haven't really done a great job fulfilling," said Aaron Press, a research director for IDC Insights.
Payment companies are "starting to recognize how this payment data is valuable beyond just the payment use case," Press said. "It really provides a lot of great consumer insights, and bringing it down to the SMB level as a service… is a great way for organizations to differentiate [themselves]."
SMBs also represent higher margin businesses, because they don't get the same volume discounts as larger enterprises, but are harder to serve because of "sheer numbers" and varying budgets and business needs, Press said.
There were 34.8 million small businesses in the U.S. as of March 2023, according to a November 2024 report from the U.S. Small Business Administration Office of Advocacy.
"If you get these companies in the fold, you can create and you give them something really valuable, you create sticky, high-margin relationships," Press said.
JPMorgan and Mastercard are betting that their new solutions will help them stand out from rising fintech competition and be a one-stop shop for business intelligence needs.
"The two things that SMBs don't have in abundance is time and expertise," Mastercard's Prokop said. "They can't be experts in every area or function of the business… there are all these areas in which corporations have very large and dedicated staffs who are quite specialized.
"Small businesses don't have that luxury," she said. "Time is of the essence for them."
