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Our perspective on the fintech world

Banks Are Lagging in SMB Innovation, And They Know It

Once upon a time, banks ruled the small and medium sized business (SMB) world.  Small businesses had nowhere else to turn to obtain financial services.  However, this is far from the case in today’s world, and banks know it.  It’s not that banks don’t think SMBs are important.  They do.  But banks today just do a poor job of serving SMBs and providing tools that meet the needs of today’s small businesses.

In a recent survey of US financial institutions from, 68% of banks acknowledged that it is very or extremely important to provide digital solutions to solve SMB client business-to-business payment frictions, plus another 26% felt it is at least somewhat important.  So, serving small businesses is clearly on their radar.  And how are they doing in meeting these needs?  Well, only 23% of those banks feel that they are effective in solving these B2B payment issues for SMBs.  In fact, 37% feel that they are only slightly or not at all effective.  Not so impressive.

Granted, it’s hard to make money targeting SMBs.  They’re small, hard to cost-effectively acquire, and typically have high churn rates.  No wonder the road to serve SMBs is littered with carcasses.  Unicorn startup Brex recently announced that they planned to abandon their thousands of SMB customers, the very segment they started out serving, in order to focus on the enterprise market.  And SMB focused neo-bank Azlo actually shut down last year after discovering that monetizing small businesses is more difficult than they expected.

So, who is actually successfully building fintech businesses for SMBs?  There are actually plenty of examples, but interestingly these providers have chosen to carve off and focus on providing rather narrow sets of services, rather than try to be a comprehensive one-stop shop.  For example, has built a $15B business by being laser focused on solving accounts payable needs for small and medium sized businesses.  Expensify has also built a multi-billion dollar business by serving the expense management needs of small businesses.  Clearly, opportunities exist in the SMB space, but success is not easy to come by.