Forty eight percent of SMBs believe that consumers will be using mobile payments in stores in the next two years. Yet only 20 percent say they’ll be ready – and these are merchants that sell both online and in stores. So, how do SMBs resist being crushed when (if?) mobile payments arrive that soon? Vantiv has some ideas that they outline in a brand new white paper that lays out the opportunities SMBs and their providers face as they work through the challenge together. They’ll also be talking about it in a live digital discussion on July 30th. Care to join them?
Most small and midsize businesses (SMBs) have multichannel endeavors, and they tend to recognize the growing importance of offering a seamless experience across channels. For support, their attention is shifting to enabling technologies, and their expectations and attitudes subsequently are changing, new research from Vantiv suggests.
On July 30, Vantiv host a noon ET webinar during which it will discuss key findings from its report “Serving the Smaller Merchant: Making Payments Work.” Vantiv will explore SMB merchants’ evolving perspectives, and what they mean to the payments partners that work with them.
For the report’s research, some 538 managers involved in making payment-services decisions for their companies were surveyed. Their companies ranged in size from $2 million to $10 million in annual sales.
SMBs typically don’t have the extensive resources available to large retail chains, but they still have to compete to meet consumers’ expectations for being able to do business in the channels of their choice, Vantiv notes in the report. Indeed, merchants’ growing interest in omnicommerce reflects the emergence of the “omniconsumer,” who doesn’t just adopt new channels such as mobile, he uses them and traditional ones as well.
“These merchants are not only looking for one-off solutions to handle, say payments or rewards,” Daniela Miele, Vantiv chief strategy officer, notes in the report. “Instead, they are looking for a broad array of tools that will help them run their businesses, increase revenues and deliver a good customer experience across channels.”
The majority of SMEs operate in two or more channels, Vantiv’s research found. Among respondents, 84 percent said they use online sales channels, and 76 percent said they have physical store locations. The high percentage of merchants with an eCommerce channel underscores their view that it’s a customer requirement and a significant opportunity.
Technology’s role
As such, payments and shopping-related technology is playing a bigger role in smaller merchants’ decision-making and strategy. And this has become as much an opportunity as it is a challenge, Vantiv’s report notes.
Merchants’ concerns on where and how much emphasis to place on technology efforts is reflected by the fact that 48 percent of respondents said they expect customers to widely use mobile payments within two years. However, among consumers researched separately, only 20 percent believed they would be using mobile payments in that timeframe, the report notes. As such, merchants may be overestimating the speed of mobile adoption.
In the report, one merchant interviewed said it might be difficult for smaller merchants to keep up with larger ones getting involved in mobile payments now. “Once the big box retailers support [mobile], there will be a big rush, and other retailers will have to support it, too,” the merchant told researchers. “If our customers pay with their mobile phones there, they will expect it at our store. But most smaller retailers are still some ways from being ready with mobile payments.”
Provide choice
Vantiv’s report also explored how merchants currently relate to their providers, as those relationships could shift. Among respondents, 6 out of 10 merchants said that they primarily use one payment provider. At 45 percent of respondents, bank acquirers have the largest share of primary relationships with SMBs, presumably because so many merchants also have loans and other financial ties to those institutions, the report notes.
Still, many merchants use multiple providers, even though banks might serve as their primary payments provider. According to Vantiv’s research, specialists hold significant market-share positions, such as terminal providers at 17 percent, gateways at 8 percent, and valued-added resellers (VARs) and independent software vendors (ISVs) at 4 percent each.
Interestingly, the report found, 76 percent of the merchants use at least one provider that is not a bank or an independent sales organization (ISO). At the same time, some ISOs now offer software solutions, putting them in direct competition with ISVs and VARs. As such, merchants in many cases appear not to understand the different value propositions in play because the lines have become so blurry, Vantiv notes in the report.
In terms of changing providers, Vantiv’s research found a range of factors merchants would weigh, from issues with managing fraud to better integration of inventory and payments to support for mobile phone-based payments. Still, payment costs and service represented the top criteria.
Smaller merchants were most reluctant to change because they valued their longstanding relationships (50 percent), had difficult-to-break contracts (41 percent) and received excellent service (41 percent). “For these reasons,” Stephanie Lusher, Vantiv director of regional market sales noted in the report, “some merchants are resistant to change, and it takes a lot of concern about the consequences of inaction to move them.”
Competitive shifts
Merchants’ growing emphasis on technology potentially could change the competitive landscape, Vantiv notes. As a result, many banks and ISOs will require new skills and, typically, need to collaborate with partners to bring more technology-based offerings to market.
Such offerings could include mobile rewards and couponing, eCommerce and omnicommerce capabilities, loyalty programs with email and text capabilities, and analytics programs that provide marketing insights into customer behavior, the report notes. However, evolving technology is making it easier to provide such offerings in ways that will work for smaller merchants.
Merchants’ focus on technology also creates opportunities for providers to offer a broader range of services. Merchants, for example, might not have the skills, time, or interest to implement and maintain technology and would welcome assistance with, say, the set up of new functions on tablets and the training of their employees to use those tools, according to the report.
Bank opportunities
Banks also have an opportunity to differentiate themselves from other financial institutions and third-party providers. In doing so, they can strengthen their role as a primary provider of services to small merchants, Vantiv contends in the report. The report suggests bundled, integrated technology-based offerings could give banks an attractive set of offerings to sell and cross-sell.
“This is something banks should really contemplate,” Royal Cole, president of Vantiv Financial Institution Services, notes in the report. “In an era of margin erosion, low interest rates and reduced non-interest income, it could give them a good way to do more business and increase revenues with these merchants.”
No matter whether the provide is a financial institution, ISO, ISV or VAR, all should remain focused on delivering high-touch service while using technology to deliver more value, in more ways, to smaller merchants, the report notes. “By leveraging the shift to technology,” says Mielke, “providers can help smaller merchants market themselves, increase customer traffic, and deliver the kind of customer experience needed to grow their businesses.”
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