Shopify: Yet another competitor shopping for your small business customers

Illustration by: Sensibill

Shopify recently introduced Shopify Balance. While the Canadian tech giant isn’t necessarily known to play in the financial services space, this new development is a way to own small business banking relationships, from start to finish. Like many other nontraditional competitors, Shopify is finding ways to disintermediate small business banking relationships because they claim that bankers are not providing services to this market. Shopify’s research reports that two in five merchants are currently using their personal banking accounts for business, and they are aiming to give businesses same-day access to the money they earn. All of this will be provided without monthly fees and with a “super instant setup so you don’t have to fill out any, crazy forms like you do if you were to set up a business bank account.”

Their research is not wrong. (Neither is ours - we’ve found that 51 percent of self-employed customers and 33 percent of micro-businesses use personal banking accounts exclusively for their business transactions.) This is because financial institutions historically haven’t been able to properly identify them and understand their unique financial needs. As a result, many small businesses use personal banking accounts for their businesses but still find their needs are not being fully met. What financial institutions failed to offer has created an opportunity for others to take the lead, which is why Shopify is the 10th most used financial services platform for small businesses; the category is led by PayPal and QuickBooks.

It’s time for financial institutions to steal the spotlight back once again. Small businesses trust their institutions to provide products and services that make their lives easier, especially during times of uncertainty. More so than ever, businesses want to reduce the stress associated with financial operations: they want a simpler way to manage expenses, optimize cash flow, and automate tax preparation. This begins with the fundamentals: managing purchase records – receipts. Receipts tell a story of not just where businesses are spending their money, but what they are spending it on. It’s up to the financial institution to share this story and provide more personalized insights to solve the universal pain businesses suffer from receipt and expense management. (Check out our webinar with American Banker and Javelin Strategy & Research’s president Jacob Jegherfor more details on how banks and credit unions can differentiate themselves digitally)

Banks and credit unions that can offer this service via digital banking can help businesses effectively monitor their spending and proactively prepare for the future. At the same time, these institutions can uncover the data needed to serve their small businesses with more relevant financial services, winning back more aspects of their financial relationships. Shopify and other nontraditional competitors will continue to aggressively target small businesses if financial institutions don’t make a change and quickly. Financial institutions need to be able to understand their small business customers better, beginning with the purchase data that nontraditional competitors like Shopify already leverage. This is no longer a ‘nice to have’ solution, the competition has begun.