May 25, 2006

This spring, Wells Fargo (San Francisco; $492 billion in assets) introduced its latest small-business banking product -- Employer Direct Pay (EDP). According to the bank, the move is just part of its expanding focus on the small and midsize enterprise market.

There's a definite trend among banks to target smaller enterprises, according to Maggie Scarborough, research manager with Financial Insights (Framingham, Mass.; an IDC company). Although banks have not always catered to this segment, that is changing, she relates. "[Banks] are getting better at serving small business," Scarborough says. "In the U.S., commercial banks know mining the small business marketplace is their future. We expect that savvy banks will use technology to gain greater visibility into what customers are doing and deliver appropriate finance products to them. Financial institutions have enough mass in technology and the Internet so that they can start investing in this segment."

'Simple Cash Management'

EDP allows business owners to deposit employee net pay, reimbursed expenses and commissions directly to employees' accounts, and to make one-time or recurring payments to contractors or agents. "This is a simple cash management tool for small businesses," says Mark Baumli, head of Wells Fargo's business Internet services. "You don't have to know anything about ACH to use this solution. It's a cost-effective, simple method for business owners to offer direct deposit."

Baumli claims that competing payment services for small businesses are usually nothing more than a corporate or retail banking solution, neither of which are designed to meet the specific needs of small enterprises. Wells Fargo, he says, tailors its products for the particular requirements of these smaller clients, taking into account ease of use and a lower price point.

EDP is integrated with Wells Fargo Business Online Banking and its alerts platform. "We can e-mail employers to let them know if a payment went through or if there was a problem with a payment and provide them with a way to fix it," Baumli explains, adding that the solution essentially eliminates the need for Wells Fargo's small business customers to write checks. Baumli says it's really a productivity tool. "[EDP] replaces having the office manager deliver the checks to the bank," he comments. "This is also a great service if you have remote employees."

The product itself is not unique, notes Financial Insights' Scarborough. Rather, the differentiating factor is the manner in which Wells Fargo has integrated it with its small business banking solution. "The key here is for the institution to be able to integrate with everything else they have -- it needs to fit into the business online banking service in a way that [will be familiar to users] -- Wells Fargo made [EDP] really user-friendly."

Two-Factor Fraud Protection

Scarborough and Baumli both tout the offering's added security feature. Wells Fargo is providing RSA Security's (Bedford, Mass.) SecurID two-factor authentication tokens for all EDP customers as an extra defense against fraud.

The tie-in with the RSA token is another differentiating element to the Wells Fargo solution, comments Scarborough. "They're coming right out of the gate with the RSA token. This is a great lever because so much risk is involved in payments," she says. "Small businesses don't seem to have the same awareness level of security risk. The interesting part is that while the user [an employee] sets up a payment, the business owner releases the payment using the RSA token." Scarborough credits the bank for "using security in an incredibly logical way."

Wells Fargo conducted a pilot for the solution for several months before launching it. According to Baumli, the feedback from the test phase was "phenomenal. [Participants] said we really took our time developing this product. There were no service issues either."

Sometimes small business owners are stereotyped as being too afraid of changing their ways, especially as things relate to technology, Baumli notes. But this assessment isn't necessarily true, he adds. "It's not that they're afraid to change their ways," Baumli says. "It's just that the small business owner wears many hats, and if he has a way of doing something that works, why should he change that? You have to really show them the true value of a new solution [to get them to change.] This service is something just about anybody can use. It's very intuitive."

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