The pandemic was a crushing blow for SMBs, with many of them pushed to the edge of survival and beyond. Still others rolled up their sleeves, pivoted their business models and embraced the digital-first economy. It’s a smart bet that for all of them, it was and still is a challenge to stay in business. Considering the circumstances, it’s impressive that so many of them maintain an optimistic attitude in the New Year, which is exactly the story told in Visa’s new Back to Business Study — 2021 Outlook.
“The good thing is, despite all of those negatively impacted to the point of failure, the businesses that have embraced digitization and new technology are actually more optimistic because they believe their client base has expanded. They have found new clients through embracing this digital transformation,” Kevin Phalen, Visa’s Global Head of Business Solutions, told Karen Webster in a recent discussion of the report’s findings and a look at the road ahead for small- to medium-sized businesses (SMBs) in the U.S. and around the world.
The main story the data is now telling, Phalen said, is that the digital transformation we’ve seen over the last several months isn’t a flash in the pan or a phase. It’s here to stay and is in some sense just getting started. Because while Visa still has work to do — particularly when it comes to security and cleaning up the digital backend for SMBs — it has found that SMBs that have embraced the digital shift to expand their efforts have in the process discovered a business model that can move from “survive” to “thrive.”
By The Numbers
The businesses that survived the global business upset that started unfolding in late winter of last year did some undeniably fast thinking that allowed them to hold on and weather the storm. They’ve made big digital shifts. According to Visa’s data, 82 percent embraced new forms of digital technology to meet their consumers’ emerging need sets. Some 47 percent are integrating security and fraud management software, 44 percent are embracing contactless or mobile payment, 36 percent are integrating buy online pick up in-store (BOPIS) and 31 percent are upgrading digital backend payment operations.
And beyond that, Phalen and Webster agreed, they’ve opened up to adapt to a radically shifting market with examples ranging from hairdressers shipping product kits out to homebound customers, to restaurants offering meal kits and grocery services.
“Small businesses now are starting to pivot their thinking,” Phelan said. “If you think about phase one and phase two of this experience, the first phase was very much around the urgency of solving an immediate survival problem. Now we are seeing business starting to pivot to ‘Wow, I’m utilizing these new things.’ And they’re working.”
Working well enough, he said, that they now offer a wider range of services to a bigger client base than they were before the pandemic and at the same time realizing it is time to start driving more digital investment. Among those investments: data safety, fraud prevention and fulfillment. Phelan said SMBs are also understanding that those investments deliver value. Consumers have spoken and digital services are what they consistently report they want and expect from their merchants. Those that can’t meet the demand, Phalen said, are risking serious trouble ahead.
“Customers are telling the small business: ‘This is the way I want you to meet me and how I want to interact with you,’” Phelan said. “If you as a business don’t want to embrace that, then ultimately you’ve got significant risks. We’ve seen it where those customers have gone elsewhere because of safety or convenience.”
Consumers have gone, he said, to the merchants able to provide for those digital needs. That has traditionally meant more firepower for big stores and chains, but has also left smaller firms feeling more empowered and able to compete with those larger chains going forward.
PYMNTS research from The Global Digital Shopping Index illustrates Phelan’s point about how consumers want to interact. It found top-performing merchants distinguish themselves by offering many digital features while also prioritizing customers’ convenience and security. It found that gaps between top performers and middling ones are particularly wide when it comes to convenience-focused features, such as mobile app ordering and curbside pickup . At least 98 percent of top performers offer every one of these convenience-focused features, while only about half as many middle performers do so.
A separate study from PYMNTS also syncs with Visa’s finding that SMBs retain an optimistic attitude toward the future. In June, less than half of SMBs surveyed by PYMNTS said they would survive into summer 2022, which rose to 54 percent by November. Part of that optimism can be traced to the resilience of the multi-channel model, where PYMNTS has found that more than 60 percent of Main Street firms have at least three channels operating to drive sales: online, at physical stores and via the phone. PYMNTS found that 71 percent use online channels, 68 percent use physical stores, 66 percent use the telephone and 59 percent use marketplaces.
The Road Ahead
There is still heavy lifting for SMBs to do as they move through the digital transformation and rebuild their businesses to meet the future. That means a focus on security and finding new ways to work with partners to “see” digital customers who come in the store.
Small merchants, he said, also need digital upgrades for their backends, and are looking to financial services providers to actually start offering them the higher-level services currently more common to the middle and large mass-market firms.
“I do think that the small businesses that thrive during this time have realized that to continue this growth momentum, they’ve got to also clean up their backend operations,” Phelan said. “And this is where that digital journey is also underway for them, which for us is really exciting because it gives us the ability to say, ‘how do we take these large middle-market solutions and really tailor them and build them out accordingly for small businesses.’”
Because though 2020 was undoubtedly long and a difficult year for the entire SMB community, those that have survived to the end of the year are now optimistically eager to take on the future. A future, Phelan said, that will be based largely on the power of the digital service set they can offer their customers.
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