Small Businesses Tap FinTech Innovations to Close Big Digital Transformation Gap

While no two small and medium-sized businesses (SMBs) are alike, many face similar challenges.

And those challenges tend to be related to the widening gap in digital transformation when it comes to the back office and payments functions of SMBs versus their larger, enterprise peers.

Still, with the news Tuesday (Sept. 3) that payment-as-a-Service provider UNIPaaS has launched a small-business-focused invoice payments partnership with American Express, embracing purpose-built solutions that cater to the unique needs of SMBs is top of mind for both Main Street merchants as well as the FinTechs and payment innovators serving them.

After all, SMBs are a diverse group, varying in size, industry, and geographical location, making their payment preferences equally diverse. Unlike large enterprises that can build custom payment systems or dedicate resources to advanced treasury management, SMBs operate with more limited budgets and infrastructure. As a result, their payment needs tend to revolve around key priorities such as affordability, simplicity, flexibility and reliability.

As these businesses begin to embrace and integrate digital tools, the potential for increased efficiency, reduced costs, and faster access to working capital will not only drive growth for SMBs but will also transform the landscape of global commerce.

Read more: Small Businesses Embrace Instant Payments: Benefits Beyond Speed

Why the Untapped Small Business Segment Is a Goldmine

SMBs represent a massive volume of daily transactions across sectors, from retail and manufacturing to services and logistics. Digitizing these transactions through better payments systems could drastically improve efficiency, cash flow, and transparency for businesses.

The PYMNTS Intelligence report, “End the Wait: SMBs and the Protracted Challenge of Delayed Payments,” in conjunction with American Express, analyzes whether a new wave of digital transformation could signal the end of an ongoing and chronic problem facing SMBs: that of delayed payments. The research finds that ineffective cash flow management, cited by 60% of SMBs as a major challenge, exacerbates the risk of business failure.

At the same time, only 5% of small business owners, or 1 in 20, have fully automated their accounts receivable (AR) and  accounts payable (AP) processes, despite the fact that doing so can provide them with the insights and growth opportunities they seek.

Automation is critical for reducing manual intervention in payment processes. Many SMBs still rely on manual invoicing and reconciliation, which is both time-consuming and prone to errors. By offering digital tools that automate these tasks, payment providers can help SMBs streamline their operations and reduce the friction that slows down transactions.

“Businesses are worried about the investment in terms of time and resources,” American Express Vice President of Marketing, Business Blueprint and Small Business Banking Brett Sussman told PYMNTS.

That’s why addressing the challenges that prevent SMBs from adopting digital solutions requires a multi-faceted approach. While traditional methods like ACH payments continue to play a crucial role in the SMB space, the rise of innovations like virtual card payments and the increasing demand for real-time digital solutions are reshaping the sector.

Still, many SMBs operate on legacy systems or basic accounting software, making seamless integration with new payment platforms essential.

Read more: 75% of Companies Still Use Paper Checks Despite High Cost

The Complex and Sometimes Conflicting Priorities of SMBs

The marketplace is continually responding the many-headed needs of SMBs.

As PYMNTS covered Tuesday, Ziina raised $22 million to provide FinTech services for UAE-based small businesses; while on Friday (Aug. 30) Brazilian FinTech Ume raised $15 million in a Series A funding round to expand its payment network and merchant services platform for SMBs on Pix.

And PYMNTS Intelligence finds that financial solutions like embedded lending are helping SMBs manage cash flow, invest in growth, and improve their overall financial health.

Embedded lending allows SMBs to access credit directly within the platforms they already use, such as eCommerce platforms, accounting software or payment processing systems. This eliminates the need for separate applications to banks or other financial institutions, saving time and reducing friction in the borrowing process.

Jennifer Marriner, EVP, Global Acceptance Solutions at Mastercard, told PYMNTS that SMBs are a significant focus within the embedded finance landscape. She noted that SMBs are particularly attracted to embedded finance as it offers a straightforward way to access financial services through the platforms that they already use for other business operations, such as accounting and inventory management.

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