As Micro Businesses Multiply in 2022, Banks Need to 'Think Small'

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With news cycles constantly focusing on the Amazons, Walmarts, and Apples of the world, it’s easy to lose sight of the impact that small businesses have on our economy and communities. With the struggles of the last two years, whenever the press focuses on small business, the stories tend to be negative — businesses going bankrupt due to Covid19, small businesses closing due to staffing shortages and so on — yet despite the struggles, small businesses are being launched at unprecedented levels. 

According to a 2020 report from the US Small Business Administration, small businesses account for 44 percent of economic activity across the country and employ more than 60 million people–nearly half of the private-sector workforce — and those numbers are only expected to go up. This increase is due to new business models and a new understanding of what constitutes a business. As we all acclimate to this remote-work digital age, remote-compatible small businesses are on the rise, including Etsy-style eCommerce operations and influencer entrepreneurs who make money from ads that run before and after their videos. Microbusinesses, businesses run by fewer than nine people, are redefining the way we think of “small business,” and their innovative brand of entrepreneurialism has the ability to make a big impact— but only if they can get the backing to get off the ground. 

With innovation, there is always a period of adjustment. Many microbusiness owners, as well as freelancers and “gigsters,” are becoming a more prevalent working group in the current economic climate. Such professionals are dealing with the downsides of the burgeoning “creator” economy. New entrepreneurs and independent professionals depend on financial institutions, especially in the early operating stages, the same way that large-scale operations with venture capital backing do. Unfortunately, between the fluctuating economy and the perceived instability of microbusinesses, gig workers, and influencer entrepreneurs, these groups are underserved in the financial sector. 

The good news? As these small, micro, and gig businesses grow in number, financial entrepreneurs are stepping up to serve them. 

When Thomson Nguyen, CEO of Nearside, founded the online banking platform, it was specifically and intentionally to cater to this market of underserved entrepreneurs. Where traditional financial institutions add fees and restrictions to banking products for less stable (read: new, small or unconventional) clients, Nearside actively does the opposite. From offering free small-business checking accounts with no monthly fees, overdraft fees or ATM fees to an unlimited 2.2% cashback in 2022 debit card program, Nearside offers new entrepreneurs and small businesses the types of financial products that the big banks reserve for big businesses.

A side benefit of serving underserved communities is increasing diversity and representation in the market. Survey data from the Federal Reserve Bank found that minority-owned small businesses are less likely than white-owned businesses to receive all the financing they seek. Nearside is hoping that their banking model will help change that. And they aren’t the only ones. 

One of the world’s largest fintechs, FIS, has helped launch Greenwood, a digital banking platform for black and Latino business owners, and their Real-Time Lending Platform has helped over 150,000 small businesses obtain $13.9 billion in loans last year. Additionally, FIS’s new $150 million investment in FIS VentureLabs is helping cultivate and empower the next generation of diverse entrepreneurial ideas in banking. It has already yielded GoCart, which is eliminating the friction and hassle that currently accounts for 50% of online shopping carts being abandoned by making everything one-click. 

As our workforce and the future of business continues to evolve and adapt, financial institutions will need to assess their banking models to determine if they are missing out on viable businesses. The good news is that small and microbusinesses, along with freelance, gig and influencer entrepreneurs, won’t need to wait for the J.P. Morgans and Bank of Americas of the world to catch up–because a few financial services groups are already “thinking small.”

Image sourced from Unsplash

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.