This Week In Payments: Saving Small Business

The first half of 2020 has been rough on small businesses of all kinds, whether they had to close their doors due to public-health orders or had to relocate their staff to working from home virtually overnight. It’s required lots of on-the-spot innovation as firms had to massively rethink their operations from the ground up. But as difficult a time as it’s been, it’s not utterly devoid of good news or silver linings, Amol Helekar, principal at investment firm TCV, told Karen Webster during the latest This Week In Payments conversation.

“I’d say that the businesses certainly have been impacted by shelter-in-place restrictions and the economic slowdown,” he said. “But for many of them, this has also been an opportunity for them to really develop their digital strategies. That relates to storefronts, that relates to collaborating and being able to work remotely, and it also relates to digital payments. These are powerful trends which we’ve been seeing over a number of years and, what’s happened over the past few months with the pandemic and the downturn has really been an accelerant for businesses to really latch on.”

And as recent headlines about some technology firms that TCV invests in indicate, the push among small and medium-sized businesses (SMBs) to bridge the digital divide has changed the landscape for firms that support SMBs, Helekar and Webster agreed.

Setting Up For The Long Term

Among the trends that have impressed Helekar has been the rapid shift across the payments and technology sector to help SMBs make digital pivots rapidly, but in a way stable enough to support small businesses over time.

The big example of that is plans that Visa announced this week to help 50 million SMBs get on the path to recovery. Visa aims to help small businesses with the company’s new online resource hubs and new small-business “street teams” of advisers who’ll help firms smoothly make the transition to offering eCommerce services and contactless payments.

Helekar noted that he’s seen similar actions at a smaller scale across the range of technology platforms his firm invests in. Many are offering transitional tools to help guide their clients across the digital divide.

For example, legal practice management software business Clio has spent the past several months working with the American Bar Association to help more law firms digitally integrate. The company has also set up a hotline to help the small businesses it serves navigate the federal CARES Act stimulus plan, the Paycheck Protection Program (PPP) and other cash-flow related issues. Lastly, Clio set up a roughly $1 million relief fund to help clients survive the current environment.

“What we’ve seen both with large companies and with smaller tech vendors is an initiative to help these small businesses take advantage of the tools that are available to them so that they can engage with their customers, set up digital storefronts and really set themselves up for the long term — but also to navigate the current realities of the situation,” Helekar said.

Moreover, he’s seen this rapid all-hands-on-deck push in all corners of industry. For instance, in the hard-hit world of restaurants, the team at Toast leaped on to rapidly developing and launching new online-ordering capabilities. Toast also partnered with local networks of delivery drivers to make it simple for shuttered restaurants to pivot to online ordering and delivery.

“We think a lot of these trends that we’re seeing are long-term trends,” Helekar said. “They are technologies that small businesses were adopting anyway and would have adopted over time that COVID and the economic downturn have massively accelerated. There is more recognition around contactless payments, mobile payments, being able to order through QR codes — all the types of things that we were already tracking in long-term technology trends. And I think companies are really stepping into efforts to try to provide those range of tools quickly to small businesses that now need them acutely.”

The Bigger Expansion Picture

And while the advances directly related to payments and commerce are notable in terms of how quickly technologists rolled them out, Helekar told Webster that firms are building out these digital advances into the wider worlds of marketing and customer acquisition.

“Certainly we see that [with] what Shopify is doing as far as eCommerce enablement for so many SMBs out there,” he said. “And the natural tie-in that Shopify has on the eCommerce-enablement side — with gateway and payment processing, whether through Stripe or Shopify payments — is another way for companies to monetize and reach their customers digitally.”

These are visible even in more niche segments like the law firms Clio serves with its Clio Go offering, which allows firms to tap into CRM and digital-marketing channels to reach out digitally to potential clients.

Closing The Cash-Flow Gap

But the big question is: “How can small businesses get the funds necessary to make all of this digital expansion possible?”

Webster said that while PPP was something of a starting place for SMBs whose revenue streams have been greatly diminished, it’s not a be-all and end-all.

Helekar said that’s a critical area of interest for TCV, which has developed the notion of “full potential SaaS.” He said software providers have so much information about their SMB clients — cash flow, how they accept payments, etc. — that they can be really powerful platforms to provide small businesses with working capital and other financial products.

“What SMB-focused SaaS and payments companies are recognizing is that whereas before SMBs had to have relationships with community banks or local institutions, with these software applications  and the data they have … that can really drive more credit intermediation,” Helekar said.

SaaS providers still have to consider risk, but the potential entrance of such data-backed potential underwriters is an advance for an SMB sector that historically struggled with access to capital even before the pandemic.

The Future Looks Bright

Helekar said such potential advances are why his outlook remains positive. After all, when push came to shove and innovation had to happen, it did so quite successfully.

He believes that while the immediate future will have plenty of rainy days, the long-term picture is quite a bit sunnier than most are giving it credit for being.

“I think in the short term there will be ups and downs that we’ll have to navigate,” Helekar said. “But over the long term, we think that this is really showing resilience and innovation across companies and across the country — both in technology and as well as in other sectors. And so, we’re optimistic about the way that this will play out over the long term.”