Accepting online payments will lock in and transform SMB relationships

For obvious reasons, 2020 changed the way we buy and pay for goods. Several eye-opening statistics have confirmed the reshaping of consumer payment behavior.

According to data analyzed from the U.S. Department of Commerce, consumers spent $861.12 billion online with U.S. merchants in 2020. This is a 44% year over year increase, the highest annual U.S. e-commerce growth in two decades — and nearly triple the 15.1% jump in 2019.

Small business owners felt this change, too. According to a Mastercard survey of small businesses across North America:

  • 76% say the pandemic prompted them to become more digital, with 82% changing how their business sends and receives payments.
  • Citing difficulty with cash flow and collecting payments, 50% added a new digital service for collecting funds while one in four transitioned to electronic invoicing.
  • With 68% saying cash and check deposits take too long, small businesses decreased their use of cash and checks more than any other payment types during the pandemic.

The shift to online payment acceptance opens the door to new competition

To meet ongoing consumer demand, small businesses have sought ways to transition from in-person to online payment acceptance. For the most part, it hasn’t been easy.

The problem: the majority of financial institutions simply have not made this technology available to their small business portfolio. Most FIs offer a reliable solution for payables (online bill pay), but they just aren’t as well positioned when it comes to receivables (online payment acceptance). A new report from Celent may help explain this disconnect: “Small businesses view banking and financial management overall dramatically differently from the banks’ view. Small businesses think about workflows, and banks think about products [emphasis ours].”

In other words, a small business owner cares about getting paid by their customers — not if that transaction is going to settle into their Free, Silver, or Gold account.

For non-banks, enabling small businesses to easily accept payments from customers has become their foot in the door for adding new relationships. The events of last year, however, kicked the door wide open. In addition to receivables solutions, non-banks now offer a comprehensive suite of deposit, payment and lending products. This all sound suspiciously like the products a bank would offer. And that’s exactly the point.

The next step: Square has just been granted a charter. That’s right, they are now a bank.

Let that one sink in for a moment. A small business owner who gets paid through Square can have those funds deposited into their connected Square account. In one fell swoop, the small business owner’s bank has been cut out of the process (if they still have one).

Square called out the need to take on the banking industry in their recent announcement: “Bringing banking capability in-house enables us to operate more nimbly [emphasis ours].” One possible translation: traditional banks are just too slow. To their credit, Square saw a need. And they say so in the same press release: “[This banking arm] will serve Square and our customers as we continue the work to create financial tools that serve the underserved.” In this context, the reference is to women-owned small businesses. But for all intents and purposes, doesn’t it hold for all small businesses?

Other non-bank providers agree. A pioneer in the small business space, Intuit, now offers Quickbooks Cash. Shopify has entered the fray as well with their Shopify Balance account. Then there’s Brex, and Kabbage… The list goes on. So where does that leave the original financial institutions (the same ones who served as the backbone to small business eons ago)?

Some experts believe that small business technologies represent a $370 billion opportunity for financial institutions.

According to a recent report from Cornerstone Advisors, small and medium-size businesses spend too much time on payments functions because they lack the tools and automation they need. Cornerstone believes that this problem has become a $370 billion opportunity to provide accounting and payments services to these businesses. How should banks respond, according to the report? By seeking ways to get “embedded into small businesses’ everyday operations.”

Chase, looking for a way to do just that, recently introduced their QuickAccept product. Business owners now have the ability to accept payments right from their mobile app — either through a manual key-in process or through an optional card reader. This platform, though ostensibly simple, provides a much-needed solution for small and micro-businesses who don’t want or need a traditional card terminal, or other more involved (and expensive) merchant services.

So why would a small business stick with a bank? The aforementioned Celent report is clear as to why: the majority of small businesses still seek “conversation” in order to get “guidance and support when they face challenging financial journeys.”

Banks will win the day if they can offer a seamless payment and deposit experience in combination with their differentiated high-touch service.

To preserve and grow small business relationships, financial institutions must maintain control over how a business gets paid, or deposits money into their account. And it starts by offering small businesses the ability to accept payments easily, whether by digital invoice, online payment forms, or some combination. Granted, most institutions lack the R&D budget of a Chase — but they can partner with fintech providers to embed customer driven workflows into their traditional banking experience. 

Autobooks partners with financial institutions to help them better serve and monetize small business relationships.

With Autobooks, a business owner can send digital invoices, accept online payments and better manage their cash flow directly within a financial institution’s existing digital banking channels. Embedding Autobooks within the banking experience provides the business owner both the products and service they need.

“We deployed the Autobooks Invoicing and Account Management tool within our bank in a matter of weeks,” said Melissa Eggleston, Chief Deposit Officer, EVP at nbkc. “On day one of launch, literally within minutes (22 to be exact), we saw one of our business customers sign up for Autobooks, send out an invoice, AND receive their first payment. This is indeed a game-changer.”


Autobooks is powered by Microsoft Azure for financial services.