Visa: Real-Time Settlement, Online Marketplaces Help Put SMBs Back On The Road To Recovery

Online marketplaces are the digital storefronts helping small to mid-sized businesses survive — but adding real-time settlement into the mix can help them thrive.

To that end, joint research between PYMNTS and Visa, in a study titled Marketplaces as Retail’s New Front Door, found that 60 percent of surveyed businesses that are not currently using online marketplaces would like to do so. And 60 percent of surveyed firms selling across online marketplaces would take their business to one that offers real-time settlement. Another 62 percent of businesses and 78 percent of individual sellers in the study (which included more than 1,000 businesses and individuals generating up to $10 million in sales) reported that they use marketplaces to reach more customers.

In an interview with Karen Webster, Mike West, head of global commercialization for Visa Direct, noted that enterprises — particularly smaller ones — have been evolving their strategies to keep pace with the rapid shifts in how consumers work, shop and pay. But getting funds settled more quickly into their accounts can make all the difference in giving them the cash cushions they need to expand, weather economic shocks and even get their suppliers paid in a timely manner.

Along the way, these companies that are embracing eCommerce have seen an increasing percentage of sales derived from digital payments.

Digital payments — and specifically, card-not-present transactions — may be convenient for consumers, but can impact the very operations of the retailers serving them. Card payments go through a number of steps, as transactions are authorized through acquiring banks, authorization requests are sent to issuing banks and, eventually, funds are deposited in merchants’ bank accounts.

“That means [there is] a gap between when you get your sales and when you get paid out — and we know cash flow is the lifeblood of a small business,” said West. The settlement wait can be several days in length, with even longer lag times over a holiday weekend.

As a result, Visa and PYMNTS found that 76 percent of the surveyed Main Street businesses reported having cash flow shortages. Roughly 27 percent of surveyed firms report waits of between three to five days.

Real-time settlements — where funds are transferred quickly between banks, such as those facilitated by Visa Direct — can help close those cash-flow gaps as these smaller firms navigate the day-to-day challenges of buying inventory, paying bills and covering shipping costs.

“We’re seeing really strong adoption from a lot of marketplaces now” that are realizing the value of real-time settlement, said West, as companies seek to have working capital available to meet new challenges and opportunities as they arise.

The potential for turbo-charged commerce, done with speed, is vast. Visa and PYMNTS found that marketplaces can capture a collective $82 billion to $141 billion per year by adopting real-time settlement options. Call it a greenfield opportunity, as only 3.5 percent of all Main Street businesses report using online marketplaces.

West said marketplaces could find value in offering fast settlements to small and medium-sized businesses (SMBs) — both as buyers and sellers — as speedier settlement improves cash coffers and transactions’ visibility.

Moving beyond the mere ability to list goods and services for sale, and settling those sales quickly, said West, “can be a real motivator to bring those businesses along” with positive ripple effects across supply chains. The merchant who gets cash faster can, in turn, spend money on new inventory (or pay workers) even more quickly.

The Increasingly Digital SMB 

Businesses and sellers that opt to ply their trade across multiple marketplaces are increasingly comfortable doing so, said West, as they run their operations digitally end to end. PYMNTS/Visa found that 72 percent of surveyed SMBs have improved upon or added digital capabilities since the pandemic began, and have increasingly transitioned online to conduct their everyday financial activities.

“That includes whether they access capital through online banking, or manage payroll, send invoices, accept payments and receive settlements digitally,” said West. In the meantime, Visa Direct’s network effect has the capability to touch billions of bank accounts as well as debit cards globally. Digital sellers leverage the online marketplace in what is anything but a passing phenomenon, with 65 percent of surveyed companies using it as a digital storefront to complement their online sales.

“It’s going to be a new normal,” said West of the digital shift, “whether launching an eCommerce site or changing POS technology to set up an omnichannel presence.”

Looking at the technology roadmaps that lie ahead, West said that while COVID-19 has forced marketplace platforms to pivot to prioritizing investments (and settling sales quickly), “the good news is that marketplaces are waking up to the demand and opportunity, and are starting to offer real-time solutions.”