Digital Payments As a Competitive Advantage

Small businesses can take on bigger rivals and win—if they’re open to the latest technology.

Small- and medium-size businesses respond differently to major shifts in how people find and purchase products and services. Some look at major changes as an opportunity to adopt new resources for getting the most bang for their buck.

Others tend to lag behind. They’re waiting for proof of concept. Or they’re making sure the change sticks before investing in the time and effort needed to keep up with innovations already embraced by larger competitors.

For businesses waiting to innovate, the consequences can be dramatic. A great example of this is how restaurants responded to the sudden drop in indoor dining during the pandemic. Those already equipped with a digital infrastructure—as well as those that had leveraged third-party platforms to let customers choose and pay for items online—were able to pivot to curbside pickup or delivery.

Others, hoping the crisis would quickly pass, found themselves struggling to play catchup to remain competitive.

The pandemic significantly increased the use of digital-payment solutions across business sectors, and that change is here to stay. But adoption rates are still lower among SMBs. If they want to win in the future, these companies must consider adopting digital payments, if only to keep up with larger competitors. Such payment choices are now expected by consumers.

Sophistication Is Key

When it comes to digital payments and other types of business-technology adoption, larger organizations tend to lead the way. For example, the Apple Store offers an entirely digital experience from check-in to issue resolution to payment. The company has been a leader in the digital experience for more than a decade and has inspired other businesses to follow suit.

Starbucks is another example of a digital leader that offers an experience that feels connected and seamless. Their gift and loyalty programs are so intuitive that even people who aren’t early-technology adopters fully understand and use the technical capabilities—such as accruing and spending rewards—in a seamless way.

Larger companies are setting expectations for consumers, and that has a waterfall effect that requires a response from other companies, especially SMBs.

Smaller companies are being forced to offer digital experiences to customers or lose their business completely to competitors. Companies that offer such experiences can benefit not just by speeding up payments, but also by creating closer relationships with customers through loyalty and other types of interactive programs.

This may seem counterintuitive. After all, many observers earlier in the digital age imagined these experience would be impersonal. But companies like Apple and Starbucks have shown outreach at scale and with digital tools can be highly personalized and tailored to  customers’ unique preferences.

A sophisticated digital ecosystem can provide other advantages too, including faster reconciliation of payments on the backend, tighter inventory control, and more rapid outgoing payments to staff and vendors.

Apps like DoorDash and Lyft streamline the customer experience, but they also make possible other valuable services. The people providing the services can get paid daily, for example, and those who are unbanked can participate in the digital economy without credit cards and checking accounts.

A digital ecosystem can also reconnect businesses like professional and trade services with their clients and customers. For example, as health-care coverage in the United States becomes more complex, those who make it easy for the patient to view their costs and pay digitally are winning business from their cash-based competition, where write-offs seem to be the norm.

And, thanks to the growing use of digital payments, consumers have a rising level of comfort with sharing financial information for transactions. That allows professional-services firms and trade-service providers to accelerate payments and back-office processing, as big retailers now do.

A service provider like a small plumbing business can accept payment via Venmo or another digital service instead of mailing an invoice and collecting a paper check. When integrated with business software, digital payments can also accelerate receivables and remove intermediaries from the service provider-customer relationship, enabling providers to offer arrangements like payment plans directly.

Table Stakes

If you visited an Apple store 10 years ago, the seamless digital experience might have felt futuristic. Now, the “Apple experience” is expected. Consumers are accustomed to using their devices to order goods and services, check in when they arrive at a business, and make digital payments automatically or at the point of sale.

In other words, digital payments are now table stakes. That means smaller companies that don’t offer digital-payment options risk being left behind by competitors that do.

The good news is that SMBs don’t have to pay a developer to create digital-payments capabilities in-house. They can access public payments platforms to manage simple transactions. Or they can partner with a vendor to create a more sophisticated and holistic digital experience that takes advantage of back-end capabilities, such as application programming interfaces (APIs). This technology allows data to flow seamlessly in real time and lets business leaders make better, faster decisions while remaining focused on core competencies.

Forward-thinking companies led the way, but big businesses like Apple and Starbucks can serve as a guiding North Star to smaller companies that want to offer similar digital experiences. These could be as simple as mobile payments that integrate with existing software or more sophisticated capabilities.

In sum, by embracing digital experiences, including payments, smaller businesses get two key advantages. They can compete and win against larger competitors, and they can reconnect with customers on a more personal level.

—Mark Bishopp is senior vice president of embedded payments and partnerships at Fortis.