9 companies investing more in small-business payments

September 29, 2023 1:14 PM

Payment companies and banks are pouring investment into small-business technology, hoping to bring automation to one of the lingering parts of the economy that's still largely based on checks and other paper processes.

There's a huge opportunity. More than five million small businesses opened last year, according to the Commerce Institute, marking the second year in a row that more than five million small businesses were created, extending a trend that started during the pandemic.

Small businesses, as well as larger companies, have long trailed consumers in adopting digital transactions. Ninety percent of businesses say their company faces problems with payment operations, according to a Harris Poll conducted for Modern Treasury, a payment technology firm. Thirty-two percent say reconciliation takes too long, 31% say there's not enough real-time insight into cash balances, 27% say the payment failure rate is too high and 26% say there are too many errors.

"There's a lot of pain in business payments," said Rachel Pike, chief operating officer at Modern Treasury. "But we think things are changing; I'm seeing a lot more self awareness among businesses that payments need to improve."

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The pressures of an economic downturn or high inflation should not slow payments technology, which is designed to cut cost and latency, Pike argues. The introduction of the Federal Reserve's FedNow platform, which will bring real-time settlement to more banks and businesses, will also bring a greater focus on real-time processing, she said.

"FedNow changes the coverage for real-time payments, and that will bring more small businesses in," Pike said.

Here are some examples of companies that brought new payment technologies to the small business market in the past four months.

Kate Fitzgerald contributed to this story.

Susana Gonzalez/Susana Gonzalez

American Express

In late September, American Express updated its Business Blueprint, a cash flow management hub for business card members.

The new features include cash flow upgrades, tools to plan future finances through external account integration, data analytics, expedited payments and payment planning options.

"Small businesses are saying the complexity of the back office has proliferated over the years," said Brett Sussman, vice president of Business Blueprint & Banking at American Express. "There's separate providers for banking, cards, payroll, financing, cross border … and they're looking for a way to centralize that."

Users can link external bank and card accounts to Business Blueprint, enabling a centralized view of expenses and incoming payments. There are also expense alerts and notifications on abnormal spending patterns.

"There are challenges with expense visibility, since payments are often bifurcated across checks, debit and credit,' " Sussman said.

Amex has been expanding its B2B services over the past year, focusing on building multirail payment networks to provide small businesses with more options to route transactions. Amex also senses an opportunity to expand in small-business payments and financial services if economic pressure causes regional banks to deemphasize small business and fintechs struggle during an economic downturn.

"Small businesses are still very concerned about inflation, and you will see that persisting into 2024," Sussman said.

By adding analytics, the company is focused on helping small businesses manage how they price products in addition to using payments technology to shave processing time. Determining how to manage rising supply costs and how much of that cost to pass on to buyers can be difficult, according to Sussman.

"There is a concern about how far is too far, and is the business driving a customer away to someone else who may have a better price?" Sussman said.

Andrew Harrer/Bloomberg

Green Dot

In late September, Green Dot entered a collaboration with the fintech Credibly to pair Green Dot's banking-as-a-service platform with Credibly's business banking platform. That includes account onboarding and cash flow management.

As part of this collaboration, the companies offer an alternative to merchant lending programs from Square and PayPal that base loan decisions on past and anticipated future payment flows. These types of loans have enabled PayPal, Square and other fintechs to encroach on small-business-focused banks by providing faster access to credit.

Credibly uses cash flow, daily balances and other alternative data to produce lending decisions, according to Ryan Rosett, founder and co-CEO of Credibly. "A third of our applicants do not have a business banking account, so this partnership will provide an avenue for these businesses," Rosett said.

Green Dot, which has its roots in prepaid cards, is in the midst of an expansion that includes adding financial services for small businesses, such as earned wage access. Green Dot wants to expand access to business-specific banking and payment services for proprietors that use their personal banking accounts for their work, said Simran Singh, head of enterprise development and embedded finance for Green Dot.

Through the partnership with Credibly, Green Dot is adding billing through a single account, providing a form of embedded finance designed for small business. There is a market for centralizing payments and banking in a cost-conscious time for small business, Singh said.

PayPal

In June, PayPal began offering open banking to its small-business clients, particularly in underserved areas. Open banking refers to sharing financial data to enable a bank or a payment account to be used to access products from third parties.

The payment company is doing this to expand its relationships with merchants that use PayPal to process transactions or to manage merchant credit. PayPal reported its average loan size has grown from $28,000 to $42,000, and the company has made more than $25 billion in loans to small businesses in the past ten years.

In the past few months, PayPal has looked to expand this lending program following the collapse of Silicon Valley Bank, sensing an opportunity to reach small tech-oriented businesses.

Venmo

PayPal's Venmo has also been active, adding Tap to Pay (also called softPOS) this summer for Android handsets. Tap to Pay enables smartphones to accept payments without additional hardware. Businesses that use Tap to Pay through Venmo can manage their Venmo and other card transactions through Venmo's app. That's designed to speed settlement.

Tap to Pay has expanded globally over the past year via major deployments at banks such as JPMorgan Chase, given the technology's ability to reduce cost of deployment and to enable most staff to accept payments with just a smartphone.

"Buyers' payment preferences typically dictate how a small business gets paid," said Alenka Grealish, a senior analyst at Celent, adding that consumers often prefer to pay by card. "Hence, softPOS is contributing to growth in small business's card acceptance rates."

U.S. Bancorp

In August, U.S. Bank released talech Terminal, a point of sale device that can manage credit card payments, inventory management, employee services and other merchant functions through a single device.

While payment companies are offering softPOS or Tap to Pay technology to cut point-of-sale costs, U.S. Bank is also focusing on updating its hardware. The bank, which supports Tap to Pay, says Tap to Pay is not always the best option, particularly for stores. To cut costs at the point of sale, U.S. Bank leases talech, enabling merchants to avoid upfront deployment expenses.

U.S. Bank also released small-business research in September, finding that 82% of small-business owners believe that simplifying digital solutions would reduce stress in their day-to-day lives — and as such they are ready to implement new technology. U.S. Bank's research also touched on the personal impacts of owning a small business, such as 60% of small-business owners saying it's impossible to have a good work-life balance in their role and 74% saying they work longer hours than they would like.

"Financial institutions and other providers have an opportunity and responsibility to help small-business owners find innovative solutions through digital tools that can save them time and energy, so they can focus on their purpose and have more time at the end of the day for their families," said Shruti Patel, chief product officer for business banking at U.S. Bank, in an email.

Umpqua

Umpqua's recent merger with Columbia Bank gave it more access to small businesses in the northwest, and that has sparked a strategy to expand its support of real-time payments, including options such as Zelle's B2C feature, the RTP Network and FedNow. Like many midsized regional banks, Umpqua is connecting with business clients to determine what types of transactions are the best fit for real-time processing.

Umpqua's recent 2023 Business Barometer found that 57% of small businesses surveyed in 2023 expect to invest in tools to protect their payments systems; this is up from 47% in 2022.

"As new use cases emerge, we proactively consult with our small-business clients and offer them a full payments menu enabling them to optimize their costs and payments timing depending on payment type, urgency, and destination," said Kathryn Albright, executive vice president and head of global payments and deposits at Umpqua, in an email. "With the popularity of real-time payments, we expect to see an increased need for real-time fraud support, which means banks have an opportunity to partner with small businesses to protect their accounts from fraud and cyber threats."

Since small businesses operate on tight margins, or a "just in time" business model, there is a need for immediate payments, particularly beyond normal business hours, Albright said, adding that Umpqua is seeing significant adoption rates among small businesses in faster payments.

Citizens Financial Group

Citizens Financial Group in June added a business version of buy now/pay later lending to accompany a consumer installment option. Citizens partners with the fintech Wisetak to bring in-person service providers to Citizens for potential installments that the small merchants can offer to consumers.

Citizens is initially focused on home contractors, auto mechanics and medical services. The bank has long offered BNPL lending for consumers, mostly for technology purchases at Apple, Best Buy and Microsoft.

Citizens is embedding business installment lending and other financial services for small business through a single connection in an effort to ward off other banks or finechs. Citizens had not had a small-business-banking offering until its partnership with Wisetak, which had also not worked extensively with a large bank before Citizens.

Square

In June, Square launched a credit card that enables businesses to access credit lines based on their sales volume.

The card includes incentives that give users $1 in free payment processing for every $3 a credit card user spends on the card — in effect rewarding merchants for using the card by enabling the merchant to offer discounts to consumers.

Square initially launched its consumer account in 2021, adding it to the company's "two-sided market" under Block, the rebranded parent company, which sells products to both consumers and businesses.

Block uses Cash App to offer services to consumers such as crypto trading and account transfers, while Square is the merchant-facing division.

BigCommerce

BigCommerce, an e-commerce platform that sells to small businesses as part of its model, this week introduced a B2B billing platform. Called Invoice Portal, it enables B2B merchants to incorporate invoices into a centralized purchasing workflow.

The product is designed to centralize disconnected invoice processes, enabling businesses to manage offline and online transactions from an e-commerce backend.

As an example, BigCommerce noted Doc Lane's Veterinary Pharmacy, a Lexington, Kentucky business that used the portal to enable buyers to place and pay for orders online, despite 60% of Doc Lane's clients using paper checks.

BigCommerce enables immediate digital payments between buyers and sellers while ensuring the checks deposit later.

BigCommerce is in the midst of a strategy that offers payment processing for other firms that are building bundles of service, or a "super app."