A lack of cash flow is a big problem for SMBs. According to the March 2021 PYMNTS Main Street Survivor Study, 30 percent of all small business owners have reportedly had to use their personal finances to support their businesses since the pandemic began. A further 18 percent have had to cut full-time staff and 15 percent have lowered their workers’ salaries.
The pandemic has just had a devastating effect on small businesses. Historically, access to credit for SMBs has been limited as business owners try to build up a credit score to access capital. It’s a difficult cycle to navigate through as i2c’s EU General Manager Jonathan Vaux explained in a recent conversation with PYMNTS. But thankfully, he said, the emergence of the fintech era is helping to change that cycle by enabling innovation in financial services with the goal to help SMBs flourish.
“What you now have is a group of historically underserved firms being serviced by new digital players who are using best-in-class technology,” he said.
Many startup businesses are now starting to build their credit profile so it’s becoming much easier to grow from that starting point. More and more SMBs are now looking at fintechs to help solve their cash flow problems through innovative solutions that are tailored to solve specific use cases such as the gig economy, payroll, emergency payments with attached installments, etc. We are seeing a plethora of new entrants come into the fintech space as well as big businesses such as PayPal and Amazon who have realized there is a huge value in entering the space.
Many of i2c’s clients are now looking for card capabilities embedded as part of their ecosystem proposition and want a really versatile platform that can meet their needs. They want to build their own solutions and want to design them in a way that often creates “imaginative new user flows” along the way. Even though innovation isn‘t specific to the EU, which is where Jonathan is based, the European market has created the right environment to drive innovation in areas such as mobile adoptions, contactless payments and open banking. The last of these have been a powerful force in accelerating fintech in the SMB market.
Regulatory and Interchange Pressures
While some of that motion has been pushed by regulatory pressures, interchange and the relative absence of it in the EU is also a powerful driver for creating the right inventiveness.
“When one can‘t necessarily rely on the economics of interchange to fund things, I think that drives a degree of invention that is sometimes hard to come by when sitting on a very profitable business,” he explained. “There’s not a huge incentive for change or innovation when you’re operating well on strong margins because of interchange.”
In a world with high interchange margins, it’s easier to put off change and fall behind the innovation curb. The digital evolution of the connected world is crucial in digital payments and beyond in terms of having the ability to anticipate and adapt to a dynamic environment.
If we look at how quickly the entire world changed during the last 12 months – with new business models, new ways to shop, and new ways to pay for products and services – there has been an unprecedented need for ability and innovative solutions for corporate players looking to thrive. It will be interesting to watch, Vaux said, as more changes and releases appear over the next 12 months to meet the oncoming rush of variant market forces.