It could be said that small and mid-sized business banking suffers from a bit of a Goldilocks syndrome. That is, the mega-corporate clients get well-served by mega-corporate banks while the little companies and entrepreneurs often get folded into the consumer banking operations at their local bank.
What that leaves is a huge swath of poorly fitting financial service offerings being doled out to a fairly substantial slice of businesses that are often growing quickly, typically with anywhere from 50 to 500 employees.
It’s a scenario the Rho Business Bank Co-founder and CEO Everett Cook is all too familiar with, and precisely why his fully-digital alternative FinTech has been able to pick-up clients and find its niche at a time of pandemic-fueled economic upheaval and an increased need for personalized business service.
“I don’t think traditional banks have failed small businesses, but I think that small businesses want more than just a place to store their money, basically,” Cook said in a recent chat with PYMNTS’ Karen Webster that delved into the ongoing shift from traditional lenders to upstart FinTechs.
“The challenge that I think large institutions — and even smaller ones — have has been that they’re kind of forced to be everything to everybody,” he said, pointing to the disparate demands involved in serving the needs of consumers, very small businesses and huge enterprises all under the same roof.
“That creates a real challenge because you just can’t be good at everything simultaneously. It’s just not possible,” Cook said.
Picking Your Place
When Cook started working on Rho in 2018 in preparation for its official launch just 3 months before the pandemic struck, he said it was nearly impossible to open a checking account online for a business.
While he said that has obviously, and expectedly, changed over the past couple of years and also been accelerated by COVID’s digital shift, solutions to the basic financial challenges that businesses face as they grow and scale are still not widely available.
He continued that as such, Rho’s service offering is focused on how payments, money movement and the management of capital actually impact the business and its operations.
“We think that competition among financial institutions in the future will really come down to what helps you run your business better, more so than marginal differences in costs and rates and convenience,” he said, pointing out that Rho is a technology platform that has partnered with great financial institutions, but not a bank itself.
A Clutter Buster
Clearly, the stakes and the competition are high in the financial sector, but there are also scores of new FinTech entrants trying to carve out a niche and vying for a piece of the pie. For a company that started with a basic business checking account and has added corporate credit cards and accounts payable options along the way, Cook is fully familiar with the competitive landscape and Rho’s holistic solution within it.
“Yes, there are a lot of spend management platforms out there, there are a lot of expense management platforms, there are a lot of AP (accounts payable) platforms,” he concedes, “but we believe that is part of the problem as it creates this clutter of products and tools that CFOs and companies need to juggle.”
For example, every time a company — especially one of growing scale and complexity — implements a new tool, everybody needs to take time to learn it and figure out how to integrate it. It’s a process, he said, that causes “a ton of friction and cost” — even those the new products are oftentimes being offered for free.
“Our objective is to basically be the fabric that exists between the company and any time the company touches their funds in any way, shape or form,” Cook said, “to help make sense of all those payments and flows and make them easier, faster and cheaper.”
The Credit Challenge
While Cook readily acknowledges that credit is something that is “really important to businesses,” he also says the lending business is as vast as borrowers’ needs are varied.
“Nobody is good at every type of credit,” he said, “so we embrace sort of a partnership model for credit, where we work with a large variety of lenders and help our customers navigate them and then run that spending through their Rho account.”
As it is, he said, around 50% of credit to businesses is already coming from non-bank entities, including FinTechs, hedge funds or other providers. He added that there’s no reason why that percentage won’t continue to rise, especially in more specialized circumstances and complicated industries.
In short, Cook said, the business bank of the future he’s building is aimed at fast-growing, digitally native companies not unlike his own, that are moving quickly and value efficiency, speed and service.
“Our goal is for CFOs and finance teams to stop spending half their time transaction processing, and to spend that time instead really thinking about their business and how to achieve their goals as opposed to being a gatekeeper for money,” Cook said.