SMBs Continue Writing Checks Their Futures Shouldn’t Embrace

While merchants, especially those heading up small and medium-sized businesses, may still prefer the familiarity and reliability of writing checks, the practice may be holding them and their businesses back.

As the data in the Q3 SMB Technology Adoption Index™ reveals, SMBs are some of the most influential actors in the American economy. They account for nearly half of all dollars paid to employees and have created the majority of new jobs since 2009.

The index data indicates, however, that SMBs lag behind when it comes to adopting new technology.

Only 47 percent can accept EMV cards, just 7 percent have completely automated their invoicing process and more than 92 percent still do not accept contactless payments. What’s more, companies still waste dollar after dollar and hour after hour processing payments via antiquated methods, like paper checks.

But why are small and medium businesses so slow to latch onto new technology, even when the new tech can save them time and money?

According to Magnus Carlsson, manager for treasury and payments for the Association for Financial Professionals, those smaller businesses often just do not have the resources to adopt new technology quickly.

PYMNTS recently spoke with Carlsson about the risks and benefits of new payment technologies for SMBs and what he sees on the road ahead.

“Whenever you make changes to the internal infrastructure, that adds a big challenge,” Carlsson told PYMNTS. “Smaller companies are usually running with much smaller margins and have less funds available to make those changes. Even slightly bigger organizations who do have funds available are still restrained because they don’t want to spend funds on things they aren’t certain are going to be beneficial.”

Simplicity and familiarity mean checks are still king

Due in large part to that reluctance to change, small and medium businesses are still heavily reliant on checks, despite some of their drawbacks. Merchants spend more than 60 hours and $13 billion annually writing and processing checks, in large part, Carlsson said, due to their comfort using the dated method.

“They’re costly, they’re slow and they’re subject to fraud to a larger extent, so there is an incentive to go against checks,” he said. “But, particularly for smaller businesses, there is a strong familiarity with it. Everyone knows how to deal with them. You don’t need to train anyone to handle checks because everybody knows how they work.”

The majority of smaller merchants who have not yet transitioned to new forms of payment are not looking to make the switch anytime soon. Just 13 percent of SMBs surveyed said they were planning to innovate, according to the latest index findings.

Carlsson explained that the unwillingness to invest in new technology is born out of a “wait-and-see” approach, as merchants with fewer resources do not want to risk implementing a solution that may not succeed or quickly become obsolete.

“Merchants don’t want to change their systems too much,” he said. “If there’s something riding on the horizon that may be very good, you don’t want to change now. So, you might just wait and save yourself the costs for now and apply the technology when the really good things come.”

Convincing small merchants to make the switch 

Most small businesses that begin adopting new payment methods do so because of either requests from existing customers or a desire to reach new customers who use the technology, the index findings show.

But for those merchants that do decide to embrace the tech, it could often be done more cheaply than many merchants realize.

“They can do your scheduled payments, your scheduled payrolls, and you can send a big file right away, and it’s taken care of,” Carlsson said of new faster payment solutions, such as ACH. “It’s known that it can be challenging to set up ACH for certain payments, but it really doesn’t have to be too hard or expensive to do that.”

Security concerns may also force even more merchants to embrace new technologies.

Carlsson explained that, because checks can expose large amounts of sensitive information, including names, addresses, bank account information, handwriting or even fingerprints, they pose a massive fraud risk.

“Everything is exposed on a check. Once you send that out and it gets into the wrong hands, that information can be used,” he said. “The best way to protect against check fraud is really to try and get away from checks.”

Anticipating what’s to come

Still, despite the low number of SMBs investing in adopting modern payment technology and the relative few that have indicated a willingness to explore innovations, there are reasons to believe that change could be on the horizon.

Carlsson cited the development of payment technologies that has occurred over the past two decades and said he expects the industry to continue to see more changes in the years ahead.

“I think the anticipation of what’s coming is interesting. I think, hopefully, we can have a system that is real-time or near real-time that can carry the information in large quantities and do it securely,” he said. “In 20 years, I would be surprised if all payments weren’t real-time, and they will probably laugh at us for even talking about anything else.”

Maybe it won’t be too long until even the smallest of businesses are embracing new and innovative payment technologies and solutions.

About The Index

The SMB Technology Adoption Index™ is a quarterly report released in collaboration with Sage, a provider of integrated accounting, payroll and payment systems, and PYMNTS.com, the leading source of news and information on innovation in payments and commerce. The index looks at business and technology trends impacting U.S. small and medium businesses.