These payment companies are rushing to serve small businesses

February 3, 2023 9:45 AM

Small businesses have been throttled by the pandemic, supply-chain glitches, labor shortages and inflation, yet the category as a whole has shown a resilience that makes it ripe for new financial services.

"We've noticed more small businesses getting formed, and they're looking for a way to manage their business in a single location," said Gina Taylor, executive vice president and general manager of business blueprint and banking for American Express.

The number of small businesses in the U.S. reached 33.2 million in 2022, according to the Small Business Administration. That's up from 32.5 million in 2021, 31.7 million in 2020 and 30.7 million in 2019.

Small businesses also do most of the hiring. Eighty percent of the 10.3 million job openings in the U.S. at the end of 2022 were at businesses with fewer than 250 employees, according to the U.S. Bureau of Labor Statistics. There are 3 million more job openings at small businesses today than before the pandemic, versus 250,000 more at large companies.

Demand has been rising constantly among business owners over the last few years to be able to meet their customers where they want to make purchases, which means accepting card payments online, sending out electronic invoices and accepting electronic payments from them. This can include implementing "pay with" buttons for Amazon, Apple Pay and Google Pay, among other measures, said Ian Benton, a senior analyst for digital banking at Javelin Strategy & Research.

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"There's a lot of time to be saved in simply digitizing the process around receiving B2B or C2B payments," Benton said.

Here are examples of companies that have rolled out new services for small businesses in just the past six months.

Patrick T. Fallon/Bloomberg

American Express

American Express this week launched Business Blueprint, a cash-flow-management hub for small businesses. The hub includes access to digital financial services and a view of cash positions, incoming and outgoing bills. Amex built the hub on the Kabbage platform, utilizing resources from the small-business fintech that Amex acquired in 2020.

U.S. small businesses can access applications for business lines of credit and directly tap into payment services products though the hub's user interface.

"One insight we've seen is that there are a lot of small businesses that are paper-based and are looking to digitize payments and automate how they manage their funds," Taylor said.

Other features include digital payment acceptance, invoice presentment and international payment processing, which is a growing need as more small businesses look outside of the U.S. for new consumers and suppliers.

"We want to bring Kabbage and Amex assets together in one stop for small businesses," Taylor said.

David Paul Morris/Bloomberg

Block

Block's merchant services unit, which still carries the Square brand, enhanced its Square Messages app near the end of 2022, applying updated artificial intelligence to help small businesses tailor responses to customer queries based on context and data accrual.

Rather than a series of scripted responses for staff or a static interactive voice response engine, Square's tools formulate responses that are specific to a customer, merchant and query.

A "suggested replies" feature gives merchants potential responses for each specific consumer, while "suggested actions" produce one-click responses, such as sending a bill or a link to a payment based on that consumer's transaction record.

"Since the onset of COVID, consumers expect fast and efficient interactions with businesses they purchase from," said William Ave, head of conversations and appointments at Square, in an earlier interview.

Tiffany Hagler-Geard/Bloomberg

GoDaddy

Just before the holidays, GoDaddy upgraded its technology to make it easier for sellers to use WordPress' content management system and WooCommerce's open source e-commerce technology to build new online stores.

The web hosting company is making a play for small merchants who feel the pinch from higher prices or economic weakness, yet still want to expand their digital presence.

GoDaddy's update makes it possible for small businesses to use a single dashboard for sales and payments at brick and mortar locations, online marketplaces, social media sites and platforms like Google, Etsy, eBay, Walmart and Amazon.

Visa

Visa partnered with Singapore-based fintech Thunes in late 2022 to expand small business' ability to connect with different digital wallets in multiple countries.

Thunes connects its B2B payments platform to Visa Direct to support real-time cross-border payments for about 80 wallet providers. Visa and Thunes hope to connect with money transfer operators, neobanks, financial institutions and government agencies that offer cross-border transfers to small businesses and consumers. Visa and Thunes are particularly focused on emerging markets in Asia, Africa and Latin America.

"There's a lot more beyond remittances," said Peter De Caluwe, CEO of Thunes, in an earlier interview. "Managing a plethora of API integrations, connections and algorithms and integrating them into one ecosystem can be a challenge for even the most robust of global players."

Mastercard

Mastercard in September extended its Strive global financial inclusion program to the U.S., pairing it with the card brand's Center for Inclusive Growth to make grants to small businesses in New York, Atlanta, New Orleans, St. Louis and Birmingham, Alabama.

Additionally, Strive USA has set up a hub to link small businesses to capital through partnerships with technology companies, and local financial institutions.

Through Strive and other programs the card brand also offers mentoring and networking for small businesses, as well as providing access to digital tools to automate business processes and access digital commerce.

Many of these payment upgrades across the industry are not necessarily about the payments technology or payment experience, but rather what's built around it, Benton said.

"Providers are trying to be the central place a business not only makes or receives payments, but also where it borrows, saves, monitors and manages its business finances on a daily basis," Benton said, adding banks and credit unions are engaging in this fight, as are technology companies like Square and PayPal.

Hello Alice

Hello Alice, a website that helps people in underserved communities start businesses, launched a credit card in September to help users fund business needs like mobile services, office supplies, dining expenses and rideshare booking.

The card joins Hello Alice's core services such as networking, educational materials and links to merchant service firms such as Fundbox, Stearns Bank and CDC Small Business Finance Corp.

In an earlier interview, Hello Alice founder Elizabeth Gore — who drew inspiration for Hello Alice through her work in the Peace Corps — said 80% of small-business owners do not have a business credit score, and most who apply for business credit at traditional financial institutions are denied.

Revolut

London fintech Revolut's U.S. expansion puts it in competition with well-known U.S. payment companies such as Square and PayPal, leading the company to place its brand in as many venues as possible to build awareness.

That includes small-business payment technology. The company issued two payment updates for small businesses in the fall of 2022. Revolut Pay presents a single-click checkout option for e-commerce sellers, placing it alongside Apple Pay, Google Pay, PayPal cards and other options.

Around the same time, Revolut debuted Revolut Reader, the company's first in-store payment hardware. These offerings allow Revolut to compete with payment technology companies such as Square and PayPal — and established payment processors and card issuers — by selling to both consumers and merchants.

Elavon

U.S. Bank's payment processing subsidiary recently launched a product called talech Register, which combines payments and analytics to support a range of small-business functions.

Talech rents its technology to small businesses rather than selling it, a strategy designed to avoid upfront fees that can range from hundreds to thousands of dollars, thus making the product more amenable to small merchants.

The product is part of a trend toward banks and fintechs offering easily managed liquidity or improvements to payment processing to blunt the impact of inflation and the higher costs of attracting talent.

"Managing the upfront costs is vital, especially for new businesses," said Elavon CEO Jamie Walker in September.

Adyen

Amsterdam-based payment company Adyen is looking to expand its U.S. profile, and that includes adding a lending product to compete with PayPal and Square, which have long offered payment and lending for small businesses.

Adyen in October released Capital and Accounts in the European Union, U.K. and U.S.

Accounts offers a place to store and access funds, and combines with an issuing function to allow consumers and small businesses to obtain payment cards. Capital offers lending via an application programming interface.

Like other small-business lending products from payment companies, Adyen's Capital bases its terms on the business' incoming payments, a model that these companies use to extend credit faster than traditional banks.

PayPal/Venmo

PayPal and its P2P app Venmo in late August partnered with Fiserv to support small-business payments to consumers and employees. PayPal and Fiserv designed the partnership to enable businesses to better engage with younger consumers, who have widely adopted PayPal and Venmo and are a potential market for health care payments, insurance claims and payroll.

Fiserv suggested the service is necessary for businesses, given millennials and other younger demographics increasingly use Venmo similar to an online bank.

"Payment services have largely been commoditized, so the real fight is to offer services around them that will engage businesses on a daily basis, save them time, and help them make better decisions for their financial health," Benton said.
-Kate Fitzgerald contributed to this story.