As small businesses flock to peer-to-peer payment apps, banks are facing a quiet but significant threat to one of their most valuable customer segments. If they can’t keep pace with the Venmos and Cash Apps of the world, they risk losing not just transactions, but long-term financial relationships.
In the Small Business, Big Debit Opportunity: The FI Counter to P2P Fintechs report, Ben Danner, Senior Analyst of Debit at Javelin Strategy & Research, looks at how banks are working to recapture this market. A key strategy is emphasizing the added value of full-service banking—particularly the suite of small business services that standalone apps can’t replicate.
The Battle for Small Business
Small businesses represent a massive market for banks, much larger than the consumer segment when it comes to payments. Yet banks are in danger of losing these relationships to fintech apps. Entrepreneurs building their businesses don’t want to juggle multiple payment systems, especially when they already use platforms like Venmo in their personal lives.
“It’s hard to beat the convenience of creating a business Venmo account and starting to collect payments on there,” Danner said. “You don’t need any knowledge about anything other than what you’re already accustomed to using in your personal life. The younger generation—the next generation of small business owners—already has Venmo accounts. The Venmo business account takes five minutes to set up, whereas if I have to go to a bank, I’ve got to set up a whole business bank account.”
Today, many small businesses can even accept card payments using only an app. In the past, microbusiness owners, such as vendors at farmers’ markets, had to open accounts with companies like Square and attach a card reader to their phones. Now, with Apple enabling NFC-based tap-to-pay, merchants can accept payments directly on their devices with no additional hardware.
These shifts have left banks concerned that small business transaction volume will migrate to P2P platforms, which are increasingly positioning themselves as pseudo-banks. In response, financial institutions are developing competing solutions. Some smaller banks now offer integrated tap-to-pay capabilities within business accounts, while instant payment tools like Zelle allow businesses to move money quickly—an essential feature for managing liquidity and cash flow.
Emphasizing Security
What might persuade a small business owner to choose bank-based services over Venmo or Cash App? Security is a major factor. Survey data consistently shows that financial institutions are viewed as the most secure option for storing and transferring money.
“When it comes to business payments, which are generally much larger than consumer payments, small businesses might want to stick with their bank,” said Danner. “There’s something about keeping my money in a traditional bank, like a Chase business banking account and the security and protections afforded to me through that, versus something like a Venmo business account.”
Zelle, created by a consortium of banks, was designed as a direct response to early instant payment platforms. Banks highlight its speed and reliability, both critical for small businesses that depend on timely access to funds.
Cost is another differentiator. Zelle is typically free to use, although some banks charge small business transaction fees. By contrast, many fintech apps charge for instant transfers, and services like Square often include monthly fees and higher transaction costs. Over time, these expenses can add up signficantly.
“If I’m a really large business that’s doing a high volume, I don’t want to work with somebody like Square, because Square charges fixed-cost fees,” said Danner. “If I work with a traditional processor, they’ll offer volume discounts.”
Connecting Businesses to Bank Accounts
Tap-to-pay technology is also helping banks attract small business customers. Companies like Moov are introducing white-label solutions—such as Tap to Local—that allow smaller banks to offer tap-to-pay functionality directly within business accounts. This eliminates the need for third-party hardware or services like Square, enabling community banks and credit unions to compete more effectively in the payments space.
“If you already have a small business banking account, it allows you to collect card payments into that account without having to use any other middleman processes,” Danner said. “It allows those small banks a way to compete with the Venmos and Squares. They can collect card payments through their own tech, which is essentially offered as white label technology through the bank.”
A Full Range of Customer Service
Traditional banks also maintain an edge in customer support. When payment issues arise, business owners can work directly with bank representatives, often backed by large support teams. In contrast, resolving problems through app-based platforms can be more challenging, with many users reporting difficulties navigating customer service channels.
Additionally, major financial institutions offer comprehensive merchant services. For example, Chase provides payment technology solutions, including card readers and related infrastructure—through its merchant services division, giving small business access to a full ecosystem of support.
“The larger the businesses go, they tend to move more into the traditional bank merchant services because they need that level of support,” Danner said. “What tends to happen with this is businesses will start very small, like a micro merchant on Venmo. Once they scale into a larger size, they’ll move into more of a traditional business bank account, because there’s more services that come with that. If you want to open up a storefront, you’re not going to get a big enough loan through a fintech app. You’re going to need real money, not a thousand bucks.”