Unlocking the small business opportunity in financial services

The financial industry tends to focus away from small and medium-sized businesses (SMBs), targeting many of its products and services at large companies. Not marketing to SMBs is missed opportunity. While large companies get more press, small businesses in the U.S. represent 32.5 million companies, approximately 99.9% of all businesses in the U.S.¹

SMBs drive the economy, representing a significant market and operate across all industries. And while the needs of a mom-and-pop shop may seem quite different from those of a 500-employee service organization, there are commonalities related to their needs around customized service, digital technology, costs and resources.

If financial institutions can partner with the right merchant services provider, they can focus on the needs of many of their customer-facing SMB customers. A strategic, long-term approach offers numerous benefits, including increased customer retention, appeal for new clients, and stronger brand recognition. Developing this revenue stream comes with minimal risk. Since SMBs tend to be more agile than large enterprises, they also offer an opportunity for financial institutions to test out the new and innovative offerings they develop themselves or via partnerships.

The opportunity with SMBs

SMBs represent a considerable market. These companies work meaningfully with financial institutions, but there’s often an opportunity to develop a deeper relationship. Partnering with a vendor to offer merchant services can help convert clients using basic checking and savings accounts to a wider array of services, changing the relationship from a transactional one towards being a trusted partner that can help solve problems.

As well, new merchant services companies may offer the kind of diversity, equity and inclusion (DEI) products and services many SMBs desire; these initiatives may help financial institutions attract new clients who are seeking a more progressive approach.

The numbers don’t lie.

Small and medium-size business are significant players on the business landscape. According to the U.S. Small Business Administration (SBA), there were 32.5 million small businesses in the U.S. in 2021, representing 99.9% of all businesses. (The SBA defines a small business on a sliding scale with as many as 1,500 employees or annual receipts of $41.5 million, depending on the sector.)^2,3

These organizations employ 61.72 million people, representing 46.8% of the private workforce in the U.S.⁴ And while they span almost all sectors, the top three, employment-wise, are health care, food services and construction.⁵

The employment growth in this segment is considerable: over the past 25 years, small businesses created 12.9 million new jobs, representing 66% of employment growth in the U.S.⁶ According to SCORE, small businesses account for 54% of sales in the U.S.⁷ They often work closely with financial institutions: in 2020, banks loaned $114.3 billion to small companies with revenues of $1 million.^{8, 9} Who owns companies is also changing: the latest information from the U.S. Census reveals that 18.3% of all U.S. business that have employees are owned by people from ethnic minorities while 19.9% are owned by women.¹⁰

Unique needs or customer expectations

Customer-facing SMBs have specific concerns related to payment acceptance. More than 70% of customers prefer using digital payment methods instead of cash.¹¹ Customers want convenience, speed and choice when they buy. They’re used to the level of service they get from large companies as a consumer or B2B client of an SMB. Barriers at the checkout level can impact customer satisfaction and loyalty. SMBs risk losing clients if there’s an easier way to do business just down the street or on a competitor’s website.

Types of payment methods customers expect include:

Contactless — Customers prefer being able to tap their debit or credit cards at the checkout. This approach fits with pandemic protocols and customer desires around using cards, mobile wallets and smart watches to avoid contact at the checkout. Contactless payment transactions soared by 150% between March 2019 and March 2020.¹² A 2021 survey found 80% of people in the U.S. had used contactless in the past year.¹³

Mobile wallets — These services, including Apple Pay, Google Pay and PayPal, safely encode credit card information. Customers pay through software, so they don’t need their card details on hand for shopping online or to carry a card for in-person transactions.¹⁴

Buy now pay later (BNPL) — Retailers can directly offer shoppers short-term financing so they can pay for purchases later, often in installments. Fintech startups such as Affirm and Afterpay lead this emerging industry worth $700 billion,¹⁵ with traditional financial services players increasingly moving into this space.

Cryptocurrency — Services such as Checkout with Crypto by PayPal and Checkout.com allow people to pay for their purchase with crypto. Just 6% of Americans use or own crypto at the moment, but the industry is expected to grow and become more stable.¹⁶

Payment challenges

SMBs can struggle to meet customer demands when it comes to payment methods and level of service. Meanwhile, cost is a huge factor. Merchant services can represent the second biggest expense for many SMBs, behind payroll.

The U.S. Chamber of Commerce has found that 85% of small business owners are concerned about the impact of inflation on their business. And 67% of such companies have had to raise their prices to deal with inflation — there’s more tension at the checkout and a need for SMBs to keep tightening their expenses.¹⁷

Some of the biggest challenges for SMBs include:

Resources — It takes capital, infrastructure and staff time to upgrade and maximize new merchant services technologies. Many SMBs don’t have these resources or technical knowledge to offer better payment options to their customers and run an efficient back-end operation.

Support — When companies work with off-the-shelf fintech companies, they may receive minimal support — few have their own IT departments to step in when there’s a problem. If the merchant services provider does not offer end-to-end services, companies have to do this work themselves, further stretching resources.

Scope — New merchant services technologies that only enable payment acceptance can leave SMBs with all the extra work still on their hands. They want end-to-end solutions that support their entire operation from comprehensive reporting to inventory tracking to invoicing.

Security — SMBs struggle to manage digital security across their enterprises, so they need payment solutions that come with the highest safety standards.

Technology — Investing in the kind of hardware needed for quick, secure checkouts can be a challenge for many SMBs.

Profitability — SMBs often run their B2C and B2B operations with razor-thin margins. Service charges for merchant services can erode those margins.

Diversity, Equality and Inclusion (DEI) — Many SMBs are tightly connected to their communities and have a vested interest in increasing access to their products and services, but need vendors that understand these issues and build it right into their technology or general service offerings.

How financial services institutions can help SMBs

By partnering with a reliable merchant services provider, financial services institutions can offer payment processing solutions that directly address common pain points for business owners. They can look to partners that offer consolidated services that keep costs low and offer secure and supported services.

In particular, merchant service providers that address the unique payment needs of SMBs can make a difference to a financial institution’s business customers. They include:

Real-time payments — With 61% of SMBs saying that the time it takes for the money to arrive after processing a payment has a biggest impact on their cash flow, payment timing matters.¹⁸ Offering real-time payments, seven days a week, can improve cash flow efficiency, avoid cash flow lags, allow companies to pay their own invoices on time and help them cover unexpected expenses. With inflation impacting SMBs, cash flow pressures are higher than ever.¹⁹

Commercial card optimization — When accepting government and corporate credit cards, companies can qualify for lower interchange rates, which can translate to significant savings each year. However, the data processing requirements to achieve these savings is beyond the capacity of many SMBs. A POS solution that offers automatic optimization can help companies achieve these savings without draining staff and technology resources.²⁰

All-in-one payment solutions — SMBs can benefit from having a “one stop shop” for everything related to payments. This includes a comprehensive point-of-sale system that has features beyond payment acceptance such as digital invoicing, inventory management, staffing, reporting and more This can help simplify operations, speed up cash flow and ensure they keep up with the latest payment technologies.

Convenience — In particular, restaurants with the right portable payment technology can experience higher check amounts, more generous tips and faster table turnover. Some retailers are also moving to allow customers to pay for purchases at the change room or right off the store floor.

Partnering with an SMB expert

A product such as talech from Elavon allows business customers to enjoy a cloud-based suite of tools designed to give businesses an edge. talech’s packages offer features customized to different industries that scale to meet the needs of businesses. This one-stop software allows business owners to deal with invoicing, employee management, marketing, ordering and more, and even do it all remotely, from their smartphones.

With four levels of offerings — talech Mobile, talech Starter, talech Standard and talech Premium — there’s a suite to support SMBs of a range of sizes and sectors. As well, talech Register is an aesthetically pleasing POS hardware package that is ready out of the box for restaurant and retail clients.

talech’s benefits to financial services partners include:

• Offering clients the latest payments technology
• Offering seamless onboarding and support
• Increasing customer retention

talech’s benefits to a financial institution’s business customer include:

• Saving time and money
• Secure transactions
• Affordable hardware packages
• Enabling their customers to pay with the method of choice
• Growing revenue via platform functionalities and programs
• Reporting, back of house software, and employee management

Financial services organizations can take advantage of missed opportunities with SMBs in a range of sectors. These companies want and need more support, and a partnership with a merchant service provider can address many of their customer-facing concerns and allow a way for financial services organizations to develop more meaningful relationships with these clients.

Contact us to learn more about how a partnership with Elavon can help your bank reach SMB customers.