BY Sandra Benjamin
In a Mastercard study 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.
As COVID-19 continues to stress small businesses financially and operationally, small business owners across North America are turning to digital services to improve cash flow and modernize their payments ecosystems. Citing speed, security and transparency, more than half (57%) of small businesses say they’ve increased their use of digital services for business-to-business (B2B) payments since the start of the pandemic.
According to a new small business study by Mastercard, over one third (38%) of small business owners in the U.S. and Canada say they’re experiencing cash flow issues associated with late payments and slow processing times for cash and checks. While the challenges of traditional, physical payments existed before the pandemic, these pain points were magnified by widespread lockdowns and social distancing measures. Now, nearly half (48%) of small business owners say their business is one missed payment away from going under.
To address these challenges, nearly two-thirds (64%) of small businesses say they are actively trying to steer clients away from using cash and checks. Findings from the new Mastercard study show:
Shift to digital business payments: With the majority of small businesses citing speed and security (91%) and transparency (87%) as top priorities, 82% say they’ve changed how their business sends and receives payments with 51% transitioning their clients to digital methods. Online card payments saw the greatest increase at 60%, while the use of cash (34%) and checks (24%) decreased more than any other payment types during the pandemic.
Digital payoff: Over two-thirds (67%) of small business owners agree that one upside to the pandemic is that it prompted them to upgrade their digital/e-pay solutions, which 81% say has improved customer satisfaction levels.
Digital is the new normal: Positive sentiment, increased customer satisfaction and continued exploration suggest small businesses plan to stick with digital business payments, even as the pandemic subsides. 70% say they are willing to invest in the technology required to advance their payment systems and 73% say digital payments are the new normal for their business going forward.
“The pandemic has made it painfully clear how labor intensive current business payment processes are, especially for small and medium-sized businesses,” said Ron Shultz, executive vice president, New Payments Business, North America at Mastercard. “With cash flow more critical than ever, we’re seeing an accelerated shift to digital B2B payments as businesses of all sizes look to safeguard their operations today and prepare for the future.”
While the new Mastercard study focused on changing behaviours of small business owners, the trend towards digital business payments is being observed across all business types, including large organizations.
“IDC research shows that consumers have reduced their use of physical currency to half of what it was before the pandemic, as they increasingly look towards contactless forms of commerce, whether e-commerce, local delivery, and/or “buy online and pickup in-store” (BOPIS),” said Nigel Wallis, IDC research vice president. “At the same time, the business world is jumping into the Next Normal by embracing digital payments and e-commerce in their existing B2B workflows, as well as expanding into direct to consumer (D2C) channels. In IDC’s view, these aren’t temporary changes, this is the evolution of business going forward.”
A paradigm shift in the B2B payments landscape
Mastercard has been leading the charge to modernize the business payment ecosystem, culminating in the launch of Mastercard Track Business Payment Service (BPS) earlier this year. The open-loop network modernizes business payments and provides choice of payment types between suppliers and buyers. The service gives businesses a way to maintain control, better manage cash flow and be more operationally efficient, while also connecting businesses across the globe, regardless of currency or payment type, to drive efficiencies across the business payment ecosystem.
Now, as businesses seek to improve cash flow by digitizing payments traditionally dominated by manual processes, Mastercard survey data shows a majority (77%) of small business have adopted a digital service such as payment collection (50%) and electronic invoicing (26%) to modernize business payments. Expressing a desire to consolidate digital service providers, one in two small business owners say they would ideally manage payment-related services through their bank.
Supporting Small Businesses
Mastercard remains committed to identifying and addressing the needs of small businesses as they continue to adapt to new ways of operating and evolving customer requirements. This survey further reinforces Mastercard’s ongoing work to deliver on the unique needs of small business owners, including access to day-to-day business management tools and solutions available to the millions of Mastercard small business cardholders through programs such as Mastercard Digital Doors™. The program provides the everyday tools needed to help close the digital divide and support this community to digitally transform and adopt effective cyber-security safeguards. In Canada, Mastercard has also partnered with Digital Main Street to give small businesses the tools to succeed online.
Online interviews of 1000 small business owners in the United States and Canada
500 respondents per country in the U.S. and Canada
Small businesses with fewer than 100 employees and annual revenue between $50 thousand to $1 million were surveyed
Research conducted July 13 to 17, 2020