Slideshow Data: Digitizing SMB payments

Published
  • May 23 2018, 11:28am EDT
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Small and midsize businesses (SMBs) are adapting to digital payments technology at slower speeds and for different reasons than larger enterprises. Cash and checks still account for almost half of all SMB payments, according to Aite Group, and SMBs have lagged behind other merchants in the U.S. shift to EMV technology over the past few years.

Data from various surveys suggests cost is the biggest motivator for SMBs to make changes in payment processes, versus improving efficiency. But the rise of mobile apps and digital payments technology is making it easier for SMBs to leap to new payment platforms. What follows is a look at areas where SMBs show interest in digitizing payments, creating fresh opportunities for providers of such services.

Paper checks are still the mainstay in SMB payments, both for accepting funds and paying bills, according to Aite Group’s survey of 1,000 U.S. small businesses conducted last year. The firm defines SMBs as those generating between $100,000 and $20 million in annual revenue. In the breakdown of all SMB payments, paper checks account for 44% of payments, with ACH electronic transfers at 30%, cards at 17%, wires at 6% and cash coming in at 3%.

SMBs show a strong willingness to adopt digital payments where possible, Aite’s survey suggests. Forty percent of respondents said they would use mobile payments more often if they could see all bills and supporting documents on a smartphone or tablet, or be able to scan bills via a mobile app. About a third of SMBs said they would use mobile payments if they could receive a text or notification on a dashboard when a bill needs approval for payment.

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Most large U.S. merchants have made the transition from mag-stripe to EMV chip card technology following the card networks’ liability shift that went into effect in October 2015. Visa this month reported 2.9 million merchants are now accepting chip technology, up from about 300,000 three years ago.

But it’s another story for small businesses. Fifty-six percent of SMBs had not adopted EMV technology as of October 2017, when Manta conducted an online survey of 2,116 U.S. small businesses. Eighteen percent said they had adopted chip card technology and 25% said they didn’t know what EMV was.

The reasons SMBs haven’t made the shift to EMV are diverse. Thirty-five percent said they don’t accept payment cards—a measure of the persistence of checks and cash in small-business sectors. About the same amount, 34%, said they weren’t familiar with EMV technology and believe it has no impact on their business.

Thirteen percent of SMB respondents said they don’t process enough card payments to make the transition worthwhile. Another 11% of SMBs said switching payment technology is too much of a hassle; 4% said they disagree with the liability shift and 3% said the cost of upgrading to an EMV card reader is too expensive.

SMBs are using mobile apps for a wide range of activities, new data from FIS indicates. A majority monitor their financial services accounts via a mobile app. More than half of SMBs are also using a mobile app to initiate transactions and manage payment card controls, while 49% are using a mobile app to approve transactions within their businesses.

Mobile apps are also popular for planning finances (45%) and sending invoices (42%), but SMBs are less inclined to conduct more complex functions via mobile apps, according to a recent FIS survey. Only 33% of SMB respondents said they use a mobile app to either invest unused capital or open new accounts, and 31% said they use a mobile app to apply for a loan.

Financial transactions for small businesses (SMBs) are rapidly migrating to digital channels. Forty-six percent of SMB transactions were completed digitally in 2018, and 57% report increasing volume for digital transactions this year, according to Jacksonville, Fla.-based FIS.

SMB payments conducted via mobile devices or apps showed the sharpest increase from 2017 to 2018, with strong growth also measured for online payments (those conducted either via online transfer, ACH, auto-draft or on a vendor’s side) or via P2P services like PayPal, FIS said. The fourth annual FIS Performance Against Customer Expectations report drew on surveys GfK conducted in January and February 2018 among 1,788 consumers in the U.S., U.K., Germany and India and 570 SMB customers in the U.S. and U.K.

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Large, regional banks seem to be doing a better job of serving SMBs’ digital payment needs, according to FIS. Overall, just 8% of SMBs FIS surveyed use outside services to help process their company’s digital payments, but the situation is different for community bank customers. One in four SMB community bank customers get help from a third party to process digital payments.

Smaller and local banks may be missing out on fee income and revenue from SMBs processing digital payments, FIS’ survey suggests.

Amazon is offering payment fee discounts to merchants that use its Amazon Pay online payments feature, Bloomberg reported this month. Amazon Pay is an alternative online payment service that’s been around for several years and was relaunched in 2013, enabling merchants to accept payments by adding an Amazon checkout button on their own sites.

SMBs perennially searching for ways to lower their operating costs are one group that might be disposed to consider Amazon Pay’s discounts if they were offered. But like any new payment option, Amazon Pay faces significant obstacles for broad adoption.

To gauge the SMB channel’s vulnerability to new payment options, Cowen & Company surveyed 300 SMBs in April, prior to the news that Amazon Pay was considering offering discounts to participating merchants. Seven in 10 SMB companies had never heard of Amazon Pay, and 1 in 10 SMB’s said they were considering Amazon Pay.

Asked what would tempt them to use Amazon Pay, 41% of SMB respondents said they would consider it if it offered other beneficial services; 30% said a combination of lower pricing and benefits would tempt their interest; 23% would consider using Amazon Pay for lower pricing alone and 6% said they would never use Amazon Pay.