Small shops find growth through payment automation

Universal Standard is known for being size-inclusive, offering clothing in sizes 00 to 40 to a multicultural audience. This is a selling point, but behind the scenes, it's also a pain point.

The company has only two locations but sells worldwide through Zoom styling appointments, has found the more diverse the clothing, the longer and more numerous the supply chains become, creating a risk of incoming and outgoing payments getting out of synch.

"It's hard to provide clothing for that range of consumers. And with that comes a lot of vendors," said Jason Rappaport, chief of staff at the New York- and Seattle-based retailer.

Universal Standard recently deployed a digital payment system that's designed to work with a variety of suppliers in different countries, enabling card transactions for a clothing supply industry that Rappaport said does not typically accept cards.

"Most of our vendors aren't set up for credit cards, or if they do the fees would be extraordinary," he said.

Universal Standard's not alone.

Its business is quite different from that run by Matt Cameron, an Oklahoma resident who has largely taught himself to train horses and take photos, and also faced challenges in the digital realm. Cameron didn't have the space or the resources to take on social media or search engine advertising. But he found out leaving space on his bills for sharable reviews had the desired effect.

"I had to ask people to review my service on social media or Google, and that was difficult," Cameron said, adding he was able to get about a dozen people to do that over the course of a year. In a few months he's gotten more than 60 reviews by embedding an invitation to leave reviews inside the invoice.

Both Cameron and Universal Standard are using payment technology that's designed to go beyond the exchange of money, serving an e-commerce or micro merchant market in which technology aids business functions that would be hard for the merchant to handle alone.

The breadth of these functions is getting wider as businesses automate more of their operations, taking advantage of pandemic-era trends that are already transcending the crisis and becoming permanent.

Writing for PaymentsSource, Jessica Cheney, a vice president at Bottomline Technologies, said opportunities for businesses are expected to flourish as the services they provide become more widely available. But that will also require more diverse and alternative payment options and other merchant services that are flexible.

Fashion forward

Payment technology firm Plastiq manages the cloud system that powers Universal Standard's payment rail. Plastiq enables card payments by accessing Universal Standard's credit lines and corporate credit card, and pays the retailer's expenses directly for a fee of about 2.5% per transaction.

Suppliers are able to accept payments from a card without disrupting their own liquidity needs. The process is designed to give Universal Standard more liquidity and thus financial flexibility to shorten payment terms with its suppliers.

The process enables Universal Standard to list items for sale faster, enabling a shipping schedule that makes it easier to balance production, inventory and consumer demand.

"The majority of the suppliers who come to us have cash flow needs. Wholesalers run on very tight margins," Rappaport said.

From a brand visibility perspective, the wholesalers benefit from using Universal Standard due to its ubiquitous e-commerce model, operating what amounts to a virtual store. Consumers from any location speak to stylists on a virtual connection, asking questions about styling and clothing via Google Hangouts, Facetime or Zoom. The stylists also often try on the clothing, giving the consumer a sense of what the clothes would look like.

"Shortening [supply gaps] allows us to push payments out in a time that's more aligned with an actual sale," Rappaport said, adding it's using the payment system for other expenses such as lease payments and advertising fees.

Plastiq originally served only consumers, and it switched its focus to small to medium-sized businesses right before the pandemic strained cash flows.

The shift put Plastiq in competition with a growing range of payment technology companies such as Stripe, PayPal and Square, as well as other technology firms including Ekata and MagicCube that are adding onboarding and merchant services to existing payment technology.

Most businesses were at least thinking about their digital future before the pandemic, but the scale of the crisis was unexpected, and complicated both the response last year and the recovery that is ahead.

"Every small to medium-sized business was caught off guard," said Stoyan Kenderov, chief product and technology officer at Plastiq. "They had to rethink everything from how to connect people who weren't in offices to how to enable remote connections for staff and clients. We got caught up in that too."

Plastiq's diversification includes a partnership with corporate card company Ramp to allow businesses to use their own cards to pay suppliers that don't accept cards, enabling clients such as Universal Standard to simplify terms with vendors that don't use cards.

Plastiq additionally integrated with Quickbooks to simplify accounting connections and give Plastiq the ability to power open banking for small businesses through a variety of decentralized locations.

"The cloud really can allow people to work from anywhere," Kenderov said. "Anyone with a browser can have access. You don't have to be anchored on premise."

The bigger picture

Cameron photographs weddings and families, as well as cabins in Broken Bow, Oklahoma who use images as part of rental listings.

When Cameron sends an invoice to clients, he asks them to leave a review as part of the payment process. Only Cameron can see the reviews initially, but he and the clients have the option to share the reviews, similar to sharing an article on social media.

Cameron finds that it's best to ask for a review during payment, rather than to follow up later. "It's a lot easier to get the word out this way," he said.

Cameron is a sole proprietor, part of the micro merchant demographic many payment technology companies are trying to reach, particularly as more businesses with limited budgets and little to no staff are forced online during the pandemic. The digital migrations and new financing options create a steep learning curve, adding another challenge for a small-business owner like Cameron, who has spent the past two years learning how to turn a photography hobby into a business.

"Someone handed me a camera at my church to take pictures of some of the kids who were there, and it just clicked," said Cameron, who is also a minister. He became a minister about six years ago after leaving his horse-grooming business, which was less mobile-tech reliant than his photography operation.

"My only job as a kid was working on a ranch, preparing horses for riding," he said, adding he is now focused entirely on his photography business. There's enough builders and real estate developers in the area who use his photography as part of their own advertisements, and the in-payment review process has helped his operation grow.

The competition among payment technology companies has given very small businesses like Cameron's more options to adopt digital payments in concert with other automated services.

"We're seeing a lot more customers who want to take something that they are good at and do it full time, like a freelancer or a sole proprietor," said Mark Lenhard, CEO of Invoice2Go, Cameron's technology provider.

The rise of the gig economy and the dramatic economic shifts of the past year have pushed people into single-operator businesses. The pandemic was hard on small businesses in general. The Brookings Institution estimates about 20% of small businesses closed. But at the same time, the need to "do something else" and government stimulus have caused an increase in sole proprietorships and applications to start new business.

This has created an opportunity for payment companies, Lenhard said, because it's hard to turn an idea or a skill into a functional business. Invoice2Go during the past year has added the in-payment review feature, a website builder and expanded its CRM database to make it easier for smaller businesses to reach leads. The invoice recommendations also helped another small business, South Florida-based Christy's Bakery to increase its recommendations from 5% of customers to about 50%.

Invoice2Go, which charges a software-as-a-service fee, competes with large recognizable payment companies like Stripe, Square and PayPal, which have all raised funds and diversified their mix of small business technology and financial services during the pandemic. Some of this diversification among the larger payment fintechs is aimed at adding larger businesses, causing other digital payment companies to focus on services for micro merchants.

Ekata, a technology company that specializes in digital identity, recently added a digital onboarding program for micro merchants. And MagicCube upgraded its technology suite to allow small businesses to quickly pivot to contactless payments.

"People are finding they want to be doing something other than driving in the gig economy," Lenhard said. "And it's getting more important to be online, for a small operation to deliver a digital experience."