How coronavirus validated Plastiq’s decision to target SMBs

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When Plastiq pivoted its bill-payment services to target cash-strapped SMBs instead of consumers, the startup had no way of knowing how coronavirus would affect its growth.

Plastiq is now focused on enabling businesses to pay or accept payment via a credit card for virtually any expense by leveraging SMBs’ own credit lines, a shift ideally timed around the present crisis.

Because only about 14% of small-business owners’ invoices are directly payable with a credit card, Plastiq accepts the merchant's credit card and pays those bills directly. Plastiq charges cardholders a flat fee of 2.5% for each credit card transaction.

More than 25 million consumers have been laid off during the pandemic, and nearly every small business has had catastrophic revenue losses. To serve the latter audience, Plastiq has freed up cash for many SMBs faster than government stimulus programs, according to Sameer Gulati, Plastiq’s chief operating officer.

“A lot of small businesses are using funds from Plastiq as a bridge to if and when they actually get government stimulus funds,” Gulati said.

Plastiq’s shift to target small businesses instead of the consumer was a bit of a gamble, he said.

“At first we thought consumers were the most likely to use Plastiq to pay off bills, but over time we saw that many of our customers were entrepreneurs and business owners, and changed our focus,” Gulati said.

Plastiq—which first launched in Boston in 2012—gradually retooled around the needs of SMBs, completing the transition last year.

Operating from its new San Francisco headquarters, Plastiq in August 2019 signed a deal with U.S. Bank enabling the bank’s SMB Visa credit card customers to use its services. Last fall Plastiq also lined up $75 million in fresh venture capital financing last fall, bringing total financing to $140 million.

When coronavirus hit, Plastiq saw an immediate surge of new business from SMB customers. Most of them still have strong credit ratings and available credit lines, but less than 30 days’ worth of cash on hand with critical bills due, according to Gulati.

“We create short-term cash flow for businesses with tight margins and use our platform to optimize the terms,” Gulati said.

Before the coronavirus outbreak, Plastiq had about 1 million customers, and it’s seen double-digit growth in recent weeks, he said.

Santa Monica, Calif.-based Reel Paper, makers of 100% bamboo toilet paper, signed up in recent weeks to pay suppliers as demand for its product soared, Plastiq said.

Plastiq estimates that U.S. small businesses have a total of about $3 trillion available in untapped credit, and less than $1 trillion typically is used each year.

Even in the economic crisis, Plastiq said it hasn't seen any difficulties accessing the credit available to small businesses.

“As people lose jobs and unemployment rates spike, banks are tightening credit overall because they’re worried about default rates, but companies still in good standing still have access to their existing credit lines,” Gulati said.

Plastiq operates with customers in the U.S. and Canada, and sends payments on its customers’ behalf to 26 countries.

“We’re seeing strong transaction volume flowing to payees and it’s growing, even in the crisis as companies work to pay suppliers and stay in business,” Gulati said.

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