How regional banks can capitalize on a new population of entrepreneurs
Tags: Entrepreneurship, Customer Service, Banks, Money, Banking

Stop Making Cents: In a post-pandemic world, can regional banks find opportunity in a rising class of solopreneurs? Bionic Follow May 5, 2020 · 7 min read

By Ariel Steinlauf, Entrepreneur in Residence at Bionic

Photo by Marten Bjork on Unsplash

I was speaking with a couple of my colleagues this week about — what else — life after the pandemic. In an attempt to take our minds off of our individual travails, we tried to conjure a vision of the new future that would take into account the behavioral changes in our society. Where we landed surprised even us, seasoned disruption experts that we are.

In the background of the discussion were all of the articles we have come to expect to see daily, suggesting the obvious — unemployment will rise, lending needs will heighten, digital payments will grow, e-commerce will flourish, retail visits across sectors will tank. But what about the societal shifts that will occur as a result of all of this?

Meet the new customer — The Solopreneur

The high unemployment rate, currently estimated at 18% of the labor force, coupled with rampant furloughs, translates into extreme financial uncertainty for many. Combine that with the high degree of consumer unpreparedness across the country — 40% of Americans can’t afford a $400 emergency, and this pandemic goes far beyond that — and the result of these pressures, in our opinion, will spur many individuals to think long and hard about their latent talents and skills, or new modes of delivering them in order to generate an income. This process will give rise to the solopreneur.

While the solopreneur — an individual operating as a micro-business — is not a new concept, we foresee many more of them will start to operate now, and will continue as solo practitioners on the other side of this pandemic. More fitness instructors delivering classes online. More Uber drivers delivering meals and packages (Uber thinks that’s a good idea). More designers with a 3D printer turning into micro-manufacturers of custom parts. More hobbyists turning their skills into Etsy sales (ever heard of woodturning?)

In short, we foresee an influx of folks who realize that they don’t need to work for a business — large or small — to generate an income that will sustain themselves and their families. Their goal is not to become the next Mark Zuckerberg but rather, at least initially, to survive. What will come next is the realization that this does not need to be a side hustle, but rather an ongoing, revenue-generating endeavor.

Some of the enablers to this change we foresee have been around for over a decade: white label e-commerce platforms such as Shopify; marketplaces connecting buyers and sellers such as Amazon and eBay, and also riders and drivers, such as Uber and Lyft; digital video conferencing tools, such as Zoom and BlueJeans Networks (freshly acquired by Verizon); and productivity tools, such as the Google suite of office applications. All of these often free resources combine to accelerate this shift.

With our worlds shrinking into our neighborhoods (and in some cases, our city blocks), additional tailwinds for this shift come in the form of consumers’ desire to support their communities. This desire manifests itself in a) focus on supporting local businesses (restaurant gift cards and merchandise sales have seen a dramatic jump); b) shift to peer-to-peer transactions; and c) emphasis to making sure one’s money is going directly to the service provider, effectively cutting out any middleman (PayPal P2P payment volume jumped 50% in Q1).

If you believe, as we do, that this shift is going to happen, the question that follows is — how many of these solopreneurs exist? For an educated guess, let’s look at the recent unemployment numbers. Since mid-March, the shutdowns in many states have led to 30 million Americans filing for unemployment. However, they are not uniformly distributed across the US. Some states, especially in the Northeast, Mid-Atlantic, West, Northwest, and some of the Midwest, are seeing over 15% unemployment rates, while others are seeing “merely” 5%+ (as shown in the chart below).

Tax Foundation

Let’s assume that this is the bottom and that hiring is going to gradually pick up. First, let’s deduct the 5.8 million people who were unemployed in February 2020, just before the pandemic hit, and treat that as systemic unemployment. Now, let’s further assume that half of the remaining unemployed will return to their previous jobs or similar ones. That leaves us with over 12 million people, with a distribution skewing towards those same areas mentioned above.

In their current dire straits, these folks might not seem to be the best prospective customers for banks. But if you’re willing to entertain the thought, as we do, that this very situation will spur them to become solo enterprises, increasing their earnings potential — and their banking needs — then their lifetime value to the banking industry is nothing to scoff at.

What’s a regional bank to do?

At present, regional banks face challenges on several fronts. Declining interest rates have put increasing pressure on net interest margins. Additionally, consumer behaviors are changing as well. Driven by tech companies’ higher level of service (think Amazon 2-day shipping, the iPhone’s simple UX, and the ease of paying with Venmo), consumer expectations from their banks have risen. That in turn, has led megabanks and fintechs alike to invest in better technologies to elevate the user experience, making it harder for regional banks to catch up.

Since the interest rate is out of our control, we posit that focusing on this unique customer segment of solopreneurs is an interesting opportunity for regional banks, especially as the desire to support local businesses would extend to them as well. Here are the key considerations that, in our view, will help regional banks kickstart, maintain, and grow a relationship with this new customer segment.

● Be there from the beginning and recognize the dual facets of the relationship. Currently, solopreneurs have consumer checking accounts. However, as they grow their businesses, their financial needs will go beyond those of the consumers they are now. Start by supporting them in their hour of need and get them on their feet. Focus on providing excellent service by helping them set savings goals and emergency funds or refinance a mortgage. Then, when they are ready for more advanced products, offer them revolving loans, lines of credit, and growth capital for their business. By catering holistically to both facets of their financial lives as they evolve, you can reduce churn and strengthen a long-term relationship.

● Provide consultative services, at first free, then for a fee. Opening a business requires a mindset shift on multiple levels, most importantly financial and legal. As solopreneurs start weighing their options, offer them an opportunity to chat (via text or video) with a financial advisor. Spend some time learning about their business, help them evaluate the best way to set it up (perhaps offer a LegalZoom LLC starter pack), advise on the new tax implications (business versus personal expenses), suggest simple ways to keep track of their financials, send invoices, and create simple forecasts (FreshBooks, Wave, Poindexter, and even simple Google Sheets, are good examples). Some of these services can be automated via artificial intelligence and machine learning (the infamous AI/ML) or simpler technologies, thus reducing cost. However, don’t overly rely on those — the personal human touch, even when provided via digital means, will be important for customer retention.

● Partner to provide services digitally, and double-down on your proprietary gifts. It should come as no surprise that this new customer segment is digitally native and mobile-first. They’ll do a quick Google search or go to the company with the best reviews on the App Store. Accordingly, providing simple, fast, and friendly user experience (as noted above) will be key to attracting and retaining these customers. Competition from apps such as Digit, Chime, and others, who vie for the same dollars and are more advanced on the digital front, is going to be tough. Therefore, if you can’t compete with them, consider channel partnerships, and instead focus on your proprietary gifts — your local presence, longevity, and brand awareness in your region. The key benefits to you would be reduction in customer service costs and the opportunity to focus your physical footprint in areas where it makes sense to do so. More importantly, you will meet, and maybe even exceed, customer expectations for a higher level of service, which will help reduce churn and further support the relationship.

This wretched pandemic will, at some point, be behind us. However, things will not return to the way they were. We call that The Great Reset. Those who recognize the shifts and make the necessary pivots to their business will be the survivors and key beneficiaries of this crisis. Embrace the change that’s coming and seize this opportunity to support people in their hour of financial need. By focusing on your core strengths, role, and brand awareness in your communities, your ability to provide human customer service (albeit via new, digital channels), and by moving nimbly and deliberately, you stand to come out of this market upheaval with new life-long, happy customers.

Ariel Steinlauf is an Entrepreneur in Residence at Bionic, where he helps partners identify, validate, and launch new businesses. His work at the firm has led to the launch of several ventures, including an AI-based asset inspection service for electric utilities, a predictive analytics platform for municipal water systems, and a personal finance app for recent college graduates. Prior to joining Bionic, Ariel served as an intrapreneur, entrepreneur, and a startup advisor. Over the course of his career, he brought various new products to market, such as Sony Musicbox (a predecessor to VEVO) and Acoustiguide Apps (mobile museum guides). His work at American Express set the foundation for Amex Advance (a consumer insights platform). Hailing from Israel, Ariel started his career managing the first broadband trial in the country and subsequently headed IT operations at a pioneering search marketing startup.

The author wishes to thank his colleagues Eric Freitag, Leslie Bradshaw, and Kevin Schroeder for their input and support in writing this piece.