As we delve into the intricate and ever-evolving world of online banking for small businesses, it is crucial to understand the diverse factors that shape this industry. This report aims to provide key insights on the current state, future projections, and the reasons behind the growth of this industry, along with the implications for small businesses.

The online banking industry for small businesses is a burgeoning sector, thanks in part to advancements in financial technology, commonly referred to as fintech. This term describes the integration of technology into financial services to streamline and enhance their delivery. Fintech innovations have cultivated an environment where banking services are more accessible, efficient, and affordable - a trifecta of incentives for small businesses.

The propensity towards online banking for small businesses is fueled by the convenience offered by these platforms. They deliver a multitude of services - from basic transactions like deposits and withdrawals, to loan applications and financial advisory, all available round the clock. The convenience translates to saved time, an invaluable resource, especially for small businesses.

Moreover, online banks typically offer lower fees, higher interest rates on deposits, and attractive loan terms, a result of lower overhead costs compared to traditional banks. Herein lies the relevance of economies of scale, a cost advantage that arises with increased output of a product. In the context of online banking, it suggests that as the number of customers increases, the cost per transaction decreases, allowing these savings to be passed onto customers.

However, the decision to embrace online banking is not devoid of tradeoffs. The lack of physical branches can be a deterrent for businesses that require frequent cash handling. Furthermore, the risk of cyber threats looms large. While advancement in cybersecurity is working to counter these issues, the perception of risk can still affect decision-making.

The geographical distribution of online banking for small businesses paints an interesting picture. Developed nations with robust digital infrastructure have seen a faster adoption rate. However, developing nations are not far behind, thanks to the proliferation of smartphones and increasing internet penetration. This trend is a testament to the theory of diffusion of innovations, which suggests that an innovation spreads through specific channels over time among the participants of a social system.

The temporal aspect is equally fascinating. The adoption of online banking by small businesses has seen an exponential growth, especially in the wake of the COVID-19 pandemic. This is a classic case of Schumpeter's concept of 'creative destruction', where the old ways of banking are being replaced by the new, driven by necessity and innovation.

Understanding the drivers behind the rise of online banking for small businesses underscores the economic principle of supply and demand. The demand from small businesses for efficient, accessible and affordable banking options has driven the supply, i.e., the growth of the online banking industry.

The implications of this growth are far-reaching. For small businesses, the potential to streamline operations, reduce costs and increase efficiency is significant. At the macro level, increased financial inclusion, particularly in developing economies, can have profound socio-economic impacts.

In conclusion, the online banking industry for small businesses is at an interesting intersection of technology and finance, shaped by a myriad of economic, technological and social factors. The benefits are numerous, and while certain challenges persist, the trajectory of growth seems set to continue. As the industry evolves, it will be intriguing to monitor how small businesses navigate this landscape and how the industry itself adapts to the changing needs of its clientele.