For SMBs, Eliminating Payments Friction, Sagely

It may be conventional wisdom that smaller firms are more nimble than their larger corporate brethren. And it may be true that SMBs are, in fact, closer to their customers than bigger firms. But therein lies a challenge.

In an interview with PYMNTS’ Karen Webster, Sage Payment Solutions CEO Paul Bridgewater said that the SMB playbook, as released by his firm, showed that small businesses may not think of innovation in the same way that larger firms might. When such a disconnect exists, it is one “where accessibility and availability … [are] a challenge” for small and mid-sized businesses. “When companies start to innovate, they think about enterprises.” And, he added, those enterprises have “groups of functions within their organizations that specifically focus around statements of their business,” ranging from inventory management to front office to back office to people management. “All of that sits on a small business owner’s shoulders” when the firm is of the size ranging between 10 employees to as many as 40 employees, said Bridgewater. Those owners, he said, are focused on making sure “the engine runs,” with an eye on making sure that people are paid on time and that any other myriad of functions are attended to.

Against that backdrop, the smaller enterprise faces challenges when trying to keep up with customers who, as Webster said, “expect some modicum of innovation in their experience.” The consumer focus is indeed important, stated Bridgewater, but in addition, B2B transactions and innovation are important as well, as he claimed that “95 percent of the time” the interactions are between businesses rather than just a B2C experience. “Technology and innovation are very different when you look at both of those different focuses,” he claimed. With a consumer focus, the primary challenges that come to mind are security, fraud and simplicity in enablement for transactions.

And he added: “There is still a lot of work to do to alleviate the consumers’ concerns.” Many consumers, he continued, may associate social platforms with, well, social interactions and not payments, he offered by way of example. In light of the spate of fraud reports from major retailers, said Bridgewater, “consumer uncertainty can be very dangerous” for firms that rely on the consumer for their revenue lifeblood. “You can have a small business that has spent three generations creating a brand for a local community, and for that brand to be damaged by some level of breach or security issue, it doesn’t just dent the business, it kills it.” Thus, payment processors must take steps to educate their customers on the dangers of fraud, said Bridgewater.

The paradox of choice comes into play, said Webster, especially with consumers, who may be overwhelmed by the sheer force of what’s available (which is, especially in a big-box retailer, essentially … everything). “The best solutions for SMBs,” said Bridgewater, “are those tailored for a specific market niche … Businesses make certain payments methods available, and customers lean toward certain payment methods. And we in the industry need to make that a frictionless experience, especially for SMBs to pay attention.” SMBs are best positioned, by dint of being close to the customer, of understanding just what that individual wants “without having to embark on open-heart surgery on their business” in adopting new technology and payment methodologies.

For his own firm, said Bridgewater, ensuring access and flexibility in technology adoption is key. “Most important is growth orientation, helping firms grow their business.” Firms must be viewed on a case-by-case basis, he said. Are consumers open to sharing data about themselves? Is there pushback from the multichannel consumer? “So many companies in our space forget [these questions] and get it wrong,” said the executive. “It’s very important for these firms to choose the right business solutions provider upfront … and not buying just on price, upfront or perceived value,” he added.

Getting firms to focus on back-office challenges can be difficult, too. “At some point, you get to enough scale that you have to pay attention here,” maintained Bridgewater. “These businesses need to respond to the external market changes in real time.” Integration between the consumer-facing technology and the back end remains critically important, he added. And at the back end, that is where “soloed legacy systems” most often exist, yet regulations are proving increasingly onerous. Solution providers must work together in harmony. “The back office and the middle offices are catching up very quickly with innovation at the front [of the organization],” said Bridgewater. Webster queried that, beyond the fears of data breaches, data itself is important and vital to organizations to function well and interact efficiently with consumers. “The U.S. market has made great strides over the last two to three years” in this endeavor, said Bridgewater. The movement has been to take the data out of the system via encryption and tokenization. Those security measures have taken effect at the same time that EMV has, and those twin engines of fraud prevention have made significant inroads in combating breaches, he said. EMV is at 33 percent of all POS in the U.S. market, he noted, just in one year (and 47 percent of SMBs accept EMV), while in Europe, that same benchmark was reached in five years. “Small businesses now have a holistic view of the data and risk that is running through their systems,” eliminating, in large part, manual review. “In 2017,” he said, “we’ll see an accelerated process for certification” that can get to 95 percent coverage of payments volumes (through EMV) within the next few years. “We’re calling 2017 the year of the business builder,” he said.

Editor’s note: This interview is featured in the Q3 2016 PYMNTS.com SMB Technology Adoption Index .