How to serve smaller businesses in a bigger way

Across Europe, small and medium enterprises (SMEs) make up 99% of all businesses, employ around 100 million people, account for more than half of GDP and play a key role in adding value in every sector of the economy¹. They are, therefore, playing a pivotal role in Europe’s post-COVID recovery. And their ability to embrace and integrate digital technologies has never been more important. So, what are they looking for from digital payments, and how is the ecosystem responding?

Cey’s Food Experience is a Berlin-based micro-business that provides catering and event planning services to local companies. Describing itself as the city’s most creative catering experience, it was thriving until COVID-19 hit. “Our pipeline of work practically vanished,” explained proprietor Ceyda Suvatlar. “So overnight, we built an e-commerce platform to provide food to people in their homes instead of their offices, started hosting digital events, and even designed our own sustainable cooking boxes.”

Cey’s story mirrors the experience of countless other entrepreneurs and is indicative of the ingenuity and grit that typifies many smaller businesses. Yet often, it was the accessibility, simplicity and affordability of new digital platforms that enabled them to respond in this way. And, as the pandemic recedes, it looks as though digital savvy businesses will have the advantage. One study suggests that as the pandemic recedes, SMEs that embrace digital technologies are more likely to find new business opportunities, with the most digitalised businesses highlighting opportunities at more than double the rate of the least digitalised².

Digital payments are an important part of the wider digitalisation story. At the height of the pandemic, the ability to make and accept digital payments was often a matter of business survival. Many of the new payment behaviours have now stuck and, often, the boundaries have blurred between the physical and the digital – a prime example being the rise of app-based payments, especially the type of pay-at-table apps that are now commonplace in the hospitality sector.

So, what more do small, medium and micro-businesses want from their payment providers? What pain-points need to be solved? And how is the payment ecosystem responding?

Visa has identified four main trends:

Trend 1: Super-simplicity – not just simplicity

“Every single second counts for small businesses,” says Emma Streatfield, Head of SME at Visa Business Solutions Europe. “Tools that help them operate more simply – and are also simple to work with – really get a lot of attention.”

For businesses in the payments industry, which has traditionally been quite complex, it can be a challenge to deliver the type of super-simplicity smaller businesses are looking for. “As a sector, we have to do away with 20-page application forms, in-person meetings, impenetrable terminology, and lengthy approval processes,” adds Steve Delpy, Global Head of Acquiring, Payment Network and Expansions at SumUp Payments. “That’s why, at SumUp, we committed to a five-minute online application and approval process, introduced a single per-transaction fee, and did away with ongoing contractual commitments.”

This process of super-simplification is still playing out. For example, mPOS solutions pioneered by companies like Square and iZettle, did much to democratise card acceptance. And another wave of democratisation looks likely to come from Tap to Phone – a software-only mobile application solution enabling the acceptance of contactless payments with nothing more than a standard Android phone.

Put simply, smaller businesses are rebelling against complexity, clunkiness and commitment – and are increasingly embracing a simple cost structure.

Trend 2: Experiences – not just payments

It is not just about easy ways to accept incoming payments – it is also about easier ways to make, control, manage, monitor and reconcile outgoing payments.

“In the past, banks thought that their job was done when the transaction was complete. But, for smaller businesses, this is where the pain starts as they struggle to reconcile their payment records with their accounting and enterprise systems,” argues Hristo Borisov, Co-Founder and CEO at Payhawk, a platform that aims to help businesses bridge this gap. “We therefore believe there is huge potential to add a layer of innovation on top of the core banking services.”

This is particularly the case when a micro-business starts to grow. More employees start to join, the finances become more complicated, and the accounting becomes more sophisticated. “In this situation, it is all about streamlining the processes and eliminating the need for manual reconciliation of payments – or manual extraction of data. That is partly about innovation from businesses like Payhawk, but there are also wider forces at play. For example, governments can assist by eliminating the need to store paper invoices and records,” Hristo continues.

The advice from Payhawk, therefore, is to think about payment experiences, consider the entire digital lifecycle of a payment, and understand how this may fit into an SME’s wider business processes

Trend 3: Integrated and embedded – not just compatible and aligned

When speaking to today’s small businesses, one thing that can be surprising is the extent to which they rely on – and enthuse about – the various software solutions they use as part of their everyday operations. It may be cloud-based accounting software, like XERO, or the type of end-to-end software platforms that have been adopted by tightly-defined business segments – like Shopify for e-commerce merchants, or Lightspeed for restaurants, all the way through to outfits like Mindbody for yoga studios, Housecall Pro for plumbers or Gingr for dog groomers.

By integrating or embedding payment into their solutions, the independent software vendors (ISVs) behind these platforms have become influential players in the ecosystem. This, in turn, makes it incumbent on every other player in the ecosystem to develop their own segment-specific strategies, and to work out how they relate to or integrate with the relevant ISVs.

Discussing the digital tools which she uses to run her own business, Nicola Payne, Managing Director of inbound marketing specialists Noisy Little Monkey, demonstrates the importance of digital platforms and ISVs: “I love XERO, and one of the things I really enjoy about it is all the integrations that go alongside it, which help us to be a very efficient financial team.”

Trend 4: Omnichannel – not just multichannel

Before the pandemic, the traditional distinction between online and offline was becoming problematic. Since the pandemic, it is an anachronism.

As Michael Hartwig, Director of Strategic Business Development at InterCard in Germany explains, small business customers just want to accept the widest possible range of payment options, through a single provider, with the least complexity. “Even here in Germany, businesses have finally seen the benefit of moving from cash to cards,” he says. “They see it has increased the ticket size, and the pandemic, coupled with contactless, has helped convince them of the value. Obviously omnichannel experiences are key, encompassing POS, e-commerce, virtual terminals, pay-by links and QR codes. And there is an appetite for services that will lift their sales further, such as buy-now-pay-later capabilities.”

Steve agrees: “Small businesses want to offer the options that their customers want to pay with, encompassing every major payment scheme, plus local debit schemes and remote payment functionality – even when their customers are physically present.”