Small and medium-sized businesses (SMBs) got their clocks cleaned by the pandemic, and turning to their traditional lending sources, they’ve encountered sclerotic systems and outdated policies not conceived for the needs of the recovering Main Street merchants of 2021.
Being resourceful entrepreneurs, more SMBs began exploring the universe of FinTech payment offerings last spring and adding app-driven, platform-based solutions to solve imminent cash flow problems. Meanwhile, for many, their primary banking relationships went fallow.
According to Wimbish Potter, general manager of SMB payments at Deluxe: “SMBs are the backbone of our country, but [for legacy banks] it’s hard … to reach out and say, ‘let me [create] a lending program,’ because they’re not seeing the data come in anymore.”
In other words, SMBs’ use of FinTech products outside of legacy financial institutions’ ecosystems is cutting off those traditional lenders from the COVID-era data flows and analytical insights SMBs now need. That could have a cumulative effect downstream that harms the SMB portfolios of larger FIs.
As Potter noted, “transactional data is not coming through the banks as it used to. [SMBs] are not engaging in the same way. So the banks can’t respond the way they used to by saying, ‘oh, Wimbish’s BBQ business is at risk, I’m seeing her deposits are down.’ As the bank, I’m not seeing this now because it’s running through another solution.”
For FIs, fresh data that they can’t see represents a new competitive threat.
“We no longer go to the bank,” Potter told PYMNTS. “We’re not connected. When small businesses are looking for innovation … FinTechs have the ability to be [nimbler] and deliver the solutions that small businesses need. They’re more responsive.”
RTP Uptake Among SMBs Takes Longer Road to Ubiquity
Curiouser and curiouser the picture gets, as Wimbish commented on the fact that paper check payments have shown remarkable resiliency despite all the knocks against them this year. Meanwhile, research finds that SMBs and consumers say they’re willing to pay for instant money.
Noting that paper checks remained the second largest form of payment in 2020, Wimbish said that “you just have to figure out where they’re paying with checks. For faster forms of payment … as the technology and use cases have changed from peer-to-peer to B2B, [businesses say they are] willing to pay [for RTP] – but when the rubber meets the road, we’ve seen that adoption is much slower than the research shows, much to my chagrin.”
Here again, the sense is that established banks and FIs are quickly losing their comfortable lead as businesses leap into payment innovations – from instant to mobile – to meet imminent needs. Even B2B payments now need to be delivered with a better user experience, and much work remains.
Potter told PYMNTS that “the adoption of digital technology that happened in March and April … was mind-blowing to watch, [as] brick-and-mortar [shifted] to digital and people figured it out. In that usage, there were solutions that pulled ahead because of their user experience, because of their loveliness, because they [delivered] the intuitiveness that consumers or small businesses are looking for.”
Remarking on the generalized pandemic fatigue that is setting into the nation’s bones as winter descends, Wimbish said: “I think as a society, we are frustrated and tired and we’re locked in our houses.” From eCommerce to digital payments, he said the stark new reality is this: “People will shut down a [browser] window if you don’t get it right.”
Paper Still Fulfills Some SMB Needs Post-Pandemic
Deluxe itself has 4.5 million small business customers, and Wimbish notes that the launch earlier this year of Deluxe Merchant Services, while held back by pandemic closures, has helped SMBs with everything from launching branded merchandise to devising hybrid paper-digital payments flows.
It might seem that “digital” or at least “hybrid” was the most operative term, but Wimbish told PYMNTS that amid the unstoppable digital shift, paper checks are not hated, but rather still considered a more trusted payments vehicle than many SMBs.
“I’m a big fan of checks, and always have been,” she said. “It’s the second-largest form of payment. And there’s a security … that sits with a check. I have proof. I can go to my bank and see that I did it. The security that comes with a paper check is huge … especially around paying taxes.” Potter added that car insurance payments and medical payments, while evolving into digital, will remain major use cases for paper checks in the immediate future.
“Very rarely … do you hear people talking about check fraud” anymore, she noted. “It’s still there, but you don’t hear it. It’s not where the fraudsters necessarily … are focused.”
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