SMB Digital Banking
Azlo is Gone. Is there a place for a Digital Only SMB Bank?
As the huge bank PNC bought the US assets of the huge Spanish Bank BBVA, something that struck me in the transaction was PNC decided to close Azlo. I find this surprising on two levels, one I won’t cover here but it means the acquisition of BBVA US assets by PNC was not a digital play but a branch play. OK, but still really?
I want to talk about Azlo because I used them just last year as an example of a good digital only SMB bank. Azlo was my Digital Only High Water Mark for SMB banking and nbkc Bank was my Branch + Digital.
Most reports had Azlo holding about 100K accounts. Comparing to numbers for other SMB banks like NorthOne with 20K or Mercury with 10K it is hard to fathom shutting it down. One of the more successful SMB focused banks is Holvi in Finland with 200K clients, ironically Holvi is owned by ……BBVA.
Now that Azlo is winding down, when you Google “Azlo Bank” you get ads for Novo and Radius Bank (LendingClub).
Here is the ad for Radius Bank, oddly the word Azlo is more prominent than Radius Bank.
The folks at WhiteSight a research firm that does some great deep dives on NeoBanks and Fintech has a February 2021 report specifically on SMB Neo-Banks. It has a global focus, I am looking only at US SMB Neo-Banks. But here is the link, it is an excellent report.
https://www.whitesight.net/post/the-fintech-domino
My favorite part of their report is the “stack” they show for an SMB Neo-Bank as you can see here, there are 6 layers to the bank. I wrote previously about the integrated business tools.
Any SMB bank, Neo or legacy has got to connect to the SMB’s accounting, usually Intuit Quickbooks, but no matter, this connection is the only way a bank should service SMB clients.
It is clear that building an SMB bank is going to take more than a nice digital front end. It is interesting that the stack shows Neobanking Platform as a separate layer from Core Banking. Old school terminology for this would be Front Office and Back Office. Then again they have a layer for Banking as a Service (BaaS). I am honestly not sure of the exact difference between this layer and core. With that I still like their stack layout.
Generally a search on the subject of SMB NeoBanks you will find that the top rated banks tend to be BlueVine, Mercury and Novo. There are other SMB banks too like Lilli, but I don’t look at them here as they are focused on Freelancers only. Which I will say is a great strategy. Oxygen also has over 100K customers but they serve retail bank customers also, so not the pure play SMB Digital Only bank I was looking for comparison to Azlo.
Also Grasshopper Bank is well thought of but I ignore them as they have a branch, I really wanted to focus on truly digital only banks. I do note Radius Bank’s ad above and they also have a single branch.
Note that Mercury and Wise are both on the BBVA Open Platform that is going away as BBVA leaves their digital assets behind.
I was most surprised by BlueVine only because I don’t think of them as a bank. I think of them as a Factoring provider. They have grown since I did a little due diligence on them years ago for First Data Ventures.
According to Money Under 30 (MU30)
BlueVine’s Business Checking account is perfect for small and large businesses alike. With no monthly fees (seriously, none), unlimited transactions, and a suite of business-friendly features, you’ll gain a lot from opening an account with BlueVine.
Novo specializes in serving the banking needs of small businesses. You will need a $50 opening deposit but after that, you’ll have no minimum balance requirement and no monthly fees. Unlike Azlo, you’ll have to pay for overdrafts — there’s a $27 insufficient funds fee and a $27 uncollected funds returned fee.
Azlo received near perfect ratings from the folks at Money Under 30
I should note that BlueVine and Novo had nearly perfect ratings from Money Under 30 as well. If you are looking for a money product the site Money Under 30 is pretty good, very in depth reviews.
One point I always make to any Fintech looking to serve SMB is that SMB is not a vertical, a carpenter can run a small business but their needs are different than a coffee shop. I expect we will see some specialization for SMB Neobanks that serve a particular type of business if not vertical at least differentiating between a service and a product business.
I started this blog with the question “Is there a place for a Digital Only SMB Bank?”
The answer is YES !
I think there is a place and need in the SMB market for a Digital Only SMB bank. That is why the Azlo closure is surprising. Lots of value could have been had by moving it to another organization. Honestly the thought of the Customer Acquisition Cost (CAC) on getting nearly 100K small businesses would make an Azlo acquisition worth it.
With 30 million small businesses in the USA making up 99% of all US businesses, we are seeing the beginning of the SMB specialized Neobanks. I expect that we will see more acquisitions, launches and sub-sectors of SMB banking. Some will become specialized, maybe not a bank for plumbers, but individual service providers like plumbers and carpenters.
