RBC fights the fintechs by Uber-izing mobile payments

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Technology companies like Square and Stripe have nimbly captured small-business share from banks that often overlooked the segment. Royal Bank of Canada is trying to respond through a mix of merchant services, tied to the national debit system and incentive marketing.

RBC has just completed an overhaul of its mobile banking suite, improving its payments technology in ways that attack the time and organizational clutter of operating a small business. The bank hopes solving the hassle of running a business for a staff-challenged operation is the real lure.

“Nobody goes into business to do paperwork, so people want tools to manage the day to day of running a business,” said Rami Thabet, vice president of digital product at RBC.

Made popular by ride-sharing apps such as Uber, the idea of embedding payment technology in a range of ancillary services is making its way across the payments industry one vertical at a time.

The bank has enabled its mobile app to directly access Canada's national Interac e-Transfer payment requests. This feature is tied to a dashboard with the business’ cash position with a view of expenses and investments. RBC has also added an analysis of the business’ spending and savings.

The bank has embedded the mobile upgrade with an incentive marketing program in which business owners can access benefits when using RBC cards at partner merchants such as Petro Canada, WeWork, Fairmont Hotels & Resorts and ADP.

About a third of Canadian business owners say managing administrative tasks is their biggest challenge, according to an RBC poll.

The loyalty program and supply chain finance tools at RBC come as fintechs have expanded their payment acceptance technology into broader financial services.

Square has added installment payments for consumers to its existing merchant advance product that uses a merchant’s cash flow to pay back loans. That provides an added feature that merchants can offer to their customers, and an additional tool for Square to broaden its relationships with clients. Square's roots are in payment hardware for small merchants, though it has expanded and made formal inroads into banking.

Stripe in September debuted a digital version of a merchant cash advance, targeting e-commerce marketplaces and B2B platforms for lending. Stripe also has a large valuation of about $35 billion, which gives it flexibility to add security and other services for merchants. And PayPal has enhanced its merchant lending product to support immediate funding for small businesses.

Beyond the largest merchant acquiring fintechs, other companies such as Fundkite and established e-commerce firms such as Amazon have added lending to payments, fulfillment and other products for merchant.

The fintechs' diversification bring the technology companies closer to banking, putting pressure on banks to add supply chain and merchant services such as RBC’s dashboard and close ties to consumer financial services.

RBC says the loyalty program, dashboard and ties to traditional banking provide a broader service than the companies that focus more on technology.

“We’re able to have interactions with them on moments of need, to work with them,” Thabet said. “And there’s also the ability to offer tailored benefits, such as the offers for gas and other services.”

Banks in general have some catching up to do. More than 60% of small businesses go to a fintech to have their business needs met, rather than a bank, said Christine Barry, research director for Aite’s wholesale banking practice.

“The fintechs identified gaps in the market and banks didn’t evolve their product portfolios fast enough to meet the needs of small to medium-sized businesses," Barry said. "It puts a lot of pressure on banks to come up with new strategies.”

Working in banks’ favor is the reputation of “trust” among the people who run small businesses, as well as existing consumer financial services relationships with business owners, according to Barry. “Enhancing business payments and lending offers all of that in a single location,” she said.

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B-to-B payments Mobile payments Debit cards RBC Canada