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Online Business Banking Guide

Online Business Banking Guide

We are far from the days when banking tasks meant driving to a branch, waiting in long lines, filling out deposit or withdrawal forms, and conducting business face-to-face. Now, thanks to online business banking, you can manage all your small business needs quickly and easily through your computer or mobile device.

Digital banking has completely revolutionized the industry by offering the convenience, mobility, and flexibility that small businesses expect. The question is whether switching to an online bank, for some or all of your banking needs, is right for your business.

Here’s what you need to know about banking online for business.

What Is Online Business Banking?

Online business banking gives you the ability to manage your business account over the internet using a computer, smartphone, or tablet. It offers many of the same services as traditional business banking, but the bank operates entirely online. You apply for an account on the banks’ website and, once approved, access it via a web browser or mobile app.

“Online banking assumes a world where you don’t have branches in your life anymore,” says Eytan Bensoussan, co-founder and CEO at online bank NorthOne. “Everything can be done on your phone and the web. It allows you to do things you already do as a business but in real-time.”

Bensoussan says requiring the business owner to go to a physical location to handle checking accounts, withdrawing cash, and other activities “forcibly separates” the business owner from his or her company during crucial business hours.

“The more time spent at the bank means less time conducting business and making sales,” he says. “That’s where online mobile banking takes a step in a new direction.”

What Can You Do When Banking Online?

Practically any type of transaction you can do with a teller face-to-face, you can do online. That includes opening an account, depositing money (either by cash or checking), and moving funds from one account to another. You can also send ACH or wire transactions, pay bills, and apply for a loan online. You lose none of these features using online services.

What using an online bank doesn’t facilitate, at least not as well, is having a relationship with an advisor you can meet with in-person. That’s no small matter, either. The 2019 PACE study from FIS Global, a banking technology company, found that smaller businesses that have a banking relationship manager (RM) are more satisfied than those who don’t.

“Forty-one percent of SMBs with an RM are extremely satisfied, compared to 26% of those who don’t have an RM,” the study reported.

Another drawback to online banking involves products that traditional banks offer. Many of the newer digital-only banks, also known as “challenger” banks, limit the scope of their product offerings to streamline the service and make it more economical. However, some are beginning to branch out, offering investments, savings accounts, and loans.

“If you choose to bank only online, you’re good with 80% of business services online offers, and never have to deal with going to a bank again,” Bensoussan says.

One other hindrance to online banking comes with business growth. Bensoussan says that while online banks can be an excellent solution for small businesses, freelancers, and entrepreneurs, once a company grows to a certain size, it needs custom solutions along with a team to build them — something better suited to traditional banks.

Bensoussan adds that other business processes may still require visiting the branch and showing an ID, faxing documents, or getting on the phone with a banker at the headquarters or local branch.

“The shift with online is that you take all those operations into the computer and let them happen immediately,” he says.

Banking tasks you can do online:

  • Check your balance at any time.
  • Make mobile check deposits, ACH, and wires
  • Get a debit card (often fee-free)
  • Pay bills and transfer money to other accounts
  • Check bank statements and go paperless
  • Set up or cancel direct debits and standing orders
  • Check on investments linked to your account
  • Integrate with third-party services

Banking tasks you cannot do online (at least not yet):

  • Meet in-person with a banking advisor
  • Explore other products, such as savings accounts
  • Get custom banking solutions
  • Set up a line of credit
  • Apply for a loan
  • Notarize documents
  • Get a safety deposit box
  • Get a cashier’s check or money order

The Pros and Cons of Online Business Banking

Banking online is not a panacea. There are tradeoffs businesses have to make. Online banks offer efficiency and convenience but lack the product availability and face-to-face interaction of retail banks. Here are some pros and cons of online banking to consider.

Pros of Banking Online

There are obvious benefits to a bank with no costly overhead that stays open 24 hours a day.

  • Convenience — Online-only banks give business owners access to their accounts on a mobile device or computer any time, day or night. No more dealing with “bankers’ hours.”
  • No more lines — Going to a branch and, possibly, waiting in long lines is no longer an issue.
  • Lower costs — The PACE study cited fees as the number one reason for stopping or switching a banking relationship. Because they don’t have their brick-and-mortar counterparts’ overhead, online banking models are cheaper to use. Some offer a lower monthly fee or no fees altogether. That includes overdrafts, monthly maintenance, and ATM transaction fees.
  • Better security — Many online banks use biometrics, such as Face or Touch ID, which minimizes the risk of someone hacking a user’s account. Plus, these banks are built from the ground up with security in mind. Of course, safety is as much a responsibility of the customer as the financial institution. Keeping computers and other devices up-to-date and ensuring the operating system, antivirus software, and firewall are current are necessary to protect unauthorized access to data.
  • Customer support — Just because someone is banking digitally does not mean no humans are involved. All have customer support teams with full access to business account information.
  • Connectivity — Many online banks connect to and integrate with third-party services, such as accounting software, payment processing services, and other applications. NorthOne, for example, integrates with 14 different services, including Quickbooks, Stripe, Shopify, and PayPal.
  • Small Business Focus — In the case of online business banks, everyone focuses on the needs of their primary customers: small businesses. This is unlike traditional retail banks, which have other product lines (e.g., personal and institutional).
  • Better for the Environment — Banking online cuts down on paperwork. In some cases, a business can essentially go paperless with immediate access to company balances, electronic statements, and other environmentally-responsible business activities.

Cons of Banking Online

While there are certainly plenty of pros, there are also some cons of using an online banking service. They include:

  • Limited product offerings — Online banks tend to be more limited in scope regarding product offerings. (Few offer a savings account, for example.) As a business grows, the complexity and sophistication regarding banking features and functionality increase. It may find the need to apply for loans or lines of credit, services typically found at retail financial institutions. That said, some online banks are beginning to expand to include not only a savings account but also loans, investments, and other services.
  • Lack of brand awareness and trust — While everyone knows brands like Wells Fargo and Bank of America, these new challenger banks lack such brand awareness, so trust is an issue. The PACE study, referenced earlier, points out that trust is more than a brand promise. It is one of the bank’s most important assets, an advantage these new entries will have to earn.
  • Less convenient for cash-heavy businesses — Businesses that deal with many cash transactions, such as a restaurant, may find doing business digitally to be problematic. Making small cash transactions via a linked ATM is one thing, but large deposits are something else.
  • Cash deposits still require trip to the ATM — Even when your bank is online, cash deposits still require visiting an ATM and filling out a deposit envelope just like at a traditional bank. For very large cash deposits, the customer may need to split up deposits into several smaller increments to fit into the deposit envelopes. Some retail banks allow users to connect to the digital bank. The deposit is made at the physical location and then transferred to the online bank. Also, some businesses buy a money order, which they deposit via mobile.
  • Limits on cash withdrawals — Most ATM networks put a limit on how much cash a person can withdraw each day. That presents a problem if you need more and don’t have access to a local bank.
  • Potential technology issues — If the online bank’s website is down or the app isn’t working, you’re sunk. There are no business transactions taking place until service is restored. While there’s only a remote chance of that happening, it’s still within the realm of possibility.
  • Lack of face-to-face interaction — Digital banks put a premium on customer service, but there are times when it may be better to sit down across from the bank manager or advisor to iron out a more complex issue.

Is It Safe for Your Business to Bank Online?

Yes, using an online bank is safe. Banks tend to be risk-averse, so security is a big deal — and even more so with online banks. As mentioned, they deploy biometrics, so customers don’t have to remember a username and password. However, they also use “microservices,” a type of technology architecture that structures an application as a collection of services, which are loosely coupled and independently deployable.

Bensoussan explains:

“Modern banking security is built using microservices. Instead of one giant piece of software where someone can access the whole castle, with microservices, it’s nearly impossible to get into the entire banking system. At NorthOne, we also use third-party services to monitor transactions to make sure everything is safe.”

Can I Open a Business Bank Account Online?

Businesses can open business accounts entirely online via a website or mobile application and skip the branch altogether. For many online banks, the process is much simpler and quicker than traditional banks.

“For many online digital banks, the big question was, can we get the whole thing online,” Bensoussan says. “Now it only takes minutes instead of going to the bank with documents, waiting an hour, and the next week you get something.”

Once you pick your bank, choose the type of account you want to open and answer a few questions, such as the kind of business you operate and your tax ID. Most online-only banks require less documentation than their retail counterparts. You’ll probably be asked to verify your information via email or phone.

The steps at NorthOne are a good example. In their case, signup takes only a few minutes and involves the following steps:

  • Input your phone number and business email address
  • Create a password
  • Accept the terms and conditions
  • Verify your email
  • Answer a few questions to confirm your identity (name, address, SSN, etc.)
  • Answer a few more questions about the type of business and products or services offered, the business name, date when the company started, and address.

What are the Best Banks for Online Services?

There is no single best bank for online service, but here are some of the more popular (in alphabetical order):

  • Azlo – This online bank doesn’t charge any fees or require a minimum balance on a small business checking account. Other features include sending digital invoices directly from the account and integration with other business tools.
  • Lili – Lili is designed for freelancers. It offers no account fees or minimum balances. It also provides the ability to categorize expenses and download reports, to help the freelancer save on taxes.
  • NorthOne – Like Lili, NorthOne is designed for freelancers as well as small business owners and startup entrepreneurs. All banking is done via the mobile app, and customers can break out income into sub-accounts for expense tracking and tax purposes. It works on a flat-fee model. Customers pay $10 per month to access all features, including the checking account, business debit card, and other services.
  • Novo – This bank is also designed for use by smaller business owners, entrepreneurs, and freelancers. Novo offers free business checking and many of the same services as the other banks on the list.
  • Radius – Founded in 1987, Radius is one of the early entries into the online banking world. It partners with many other fintech industry companies. Radius also offers a 1% cashback with its rewards small business checking account. Unlike the other banks listed here, it has one physical location, in Boston. Also, it is not strictly a business-only bank but offers personal and institutional banking services in addition.

Conclusion

With the number of online-only banks on the rise and traditional banks catching the digital wave, it’s time to ask the question: Is online banking right for your business?

Can you benefit more from the convenience and cost-efficiency digital banks provide and completely sacrifice visiting a local bank? Or, is a more moderate approach, one that combines the benefits of online while still offering access to a brick-and-mortar location, better? Either way, it’s time to acknowledge a new reality. Digital banking is not just a burgeoning trend. It is the way business is done.

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This article, “Online Business Banking Guide” was first published on Small Business Trends

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