M&T teams with fintech to help small businesses manage cash flow

M&T Bank in Buffalo, N.Y., is working with a Canadian fintech called Railz to solve what it’s found to be the biggest pain point for small businesses — the difficulty of projecting daily cash flows.

Getting a firm handle on the money flowing in and out of a small business is an elusive goal for owners. Small businesses often lack steady work and they can’t predict when they will land big clients or accounts, or when those customers will pay their bills.

The problem is so prevalent that several lenders are looking to offer solutions for clients.

Jonathan Kolozsvary oversees a group within M&T Bank that is responsible for identifying customers’ pain points.

Kabbage launched a cash-flow dashboard for small businesses in May. HSBC introduced cash-flow forecasting for businesses of all sizes in October. Eastern Bankshares and a fintech called Monit rolled out an app for this purpose in December.

All are addressing a need that has become more pronounced during the pandemic.

“Forecasting cash flows was already one of the biggest challenges small businesses faced prior to COVID-19 and the challenge has increased in the current, less-predictable environment,” said Christine Barry, research director at Aite Group.

More than 60% of small businesses go beyond their primary bank to meet at least one financial need. Often that need is cash-flow forecasting, with Barry predicting that the feature will soon become critical for any financial services company that wants to serve small businesses.

“They feel they have no choice but to go beyond their bank, as most banks do not offer needed forecasting capabilities,” Barry said. “It is an area where many banks know they must invest to retain customers and be perceived as an adviser rather than just a transaction provider.”

Jonathan Kolozsvary runs a small, multi-disciplinary team that’s responsible for actively identifying customer pain points or sources of friction within the $120 billion-asset M&T. Members of the group, created three years ago, visit people in their workplaces to observe and interview them. In recent months, the work has been conducted online.

“This virtual environment has certainly made it a bit more difficult, but oftentimes, we get to the root of the problems they have and how we might try to solve them,” said Kolozsvary, M&T’s director of new ventures.

The team’s chief discovery in studying small businesses was that need to help those clients understand their cash flows.

Once it’s identified pain points, Kolozsvary’s group tries to rapidly create and test new solutions to meet those needs. Often it searches for partners that can help accelerate the process.

Kolozsvary was introduced to Railz through another fintech partner.

“Their value proposition, which is the extraction and normalization of accounting data, was a good match with that customer challenge we were hearing around cash-flow management,” he said.

M&T and Railz are working to finalize their partnership agreement and explore ways to work together.

“What we find in Railz that’s really advantageous is they’re willing to co-create,” Kolozsvary said. “In this exploratory phase, we’re working through, how do we address some of those customer problems that we’re facing. As their product roadmap develops, they’re also willing to help understand what our customers are saying.”

Railz will take data from small businesses’ accounting software to deliver insights to customers, Kolozsvary said, “so they can focus on whatever their passion is.”

The help is necessary, said Railz co-founder and CEO Sohaib Zahid, because the data small businesses receive from accounting apps such as QuickBooks and Xero is not easy to read.

“QuickBooks has APIs available to get access to that data, but the data isn’t clean, it doesn’t come out in a normalized format so developers can start building and working the top of that data,” Zahid said. “The challenge of understanding what the data actually means and how to categorize it continues to be a major hurdle for the users of this information.”

Railz, which is based in Mississauga, Ontario, provides an API that integrates with several accounting platforms used by small businesses. It formats the data so it can be used for analytics, insights and reports.

“They have the ability to extract that information, which is important,” Kolozsvary said. “But they also normalize that data. It’s taking a lot of information, being able to understand it and then digest it. And we saw that as a massive advantage for us.”

Kolozsvary does not yet know where the bank will embed this capability — for instance, in its mobile banking, online banking or elsewhere. More research is needed.

M&T will co-create a solution with Railz, likely doing so over the rest of the first quarter, before showing it to customers and prospects.

“I anticipate that over the course of this year, if enough customers say they want it and the product is considered valuable, we’ll be able to accelerate that delivery,” Kolozsvary said.

Railz recently raised $3.1 million in initial seed funding from Vestigo Ventures, Entrée Capital, Nyca Partners, Global Founders Capital, Plug and Play Ventures, N49P, and Hack VC, as well as some individual fintech investors.

“As the industry migrates towards greater digitization in the financial services, I think this is going to be a competitive edge,” Zahid said.

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