Benchmark Bytes: What Types of Fintech are SMBs Adopting?

As part of the ritual of examining local commerce and SMB Saas strategies, Localogy goes right to the source: SMBs themselves. How do they feel about marketing and operational software? What features do they want? And how has their hunger changed during a global pandemic that has hit local businesses hardest?

Localogy’s latest Small Business Trends report answers these and other questions across the SMB SaaS product set, which we examine in this Benchmark Bytes series. After the few installments examined CRM, we turn attention this week to fintech adoption. What are SMBs’ fintech goals and who’s scratching that itch?

Starting at a high level, 64 percent of SMBs reported using financial software to manage operations. Since the beginning of the pandemic, 16 percent of businesses have purchased new accounting software. These figures reference the time period between March and October 2020 when the survey was fielded.

Drilling down one level, what types of software are they purchasing? Xero leads the way with 25 percent adoption among this SMB sample. That’s followed by Freshbooks, (18 percent), Wave (11 percent), Kashoo (9 percent), Quickbooks (7 percent), Sage (7 percent), and GoDaddy Bookkeeping (7 percent).

What Does it All Mean?

Going a bit deeper, a few things jump out at us:

— Fintech’s overall dominance in SMBs (64 percent adoption) is logical because it’s a core function, compared to some of the more elective categories we’ve examined elsewhere in this study (e.g. social marketing).

— Fintech’s growth in new SMB adoption is also logical, given that this is a time when SMBs need to run a tight ship as there’s a low margin for error and dire need to mitigate Covid-inflicted losses.

— SMBs may have more time to apply to longstanding admin projects and “cleaning house,” during lockdowns, where things like bookkeeping and other fintech functions make sense.

— Fintech is more broadly defined than some of the other functions we’ve examined in this study, such as websites and CRM.

— This explains Fintech’s dominating share of SMB adoption (64 percent), given that it spans the gamut from bookkeeping to optimizing inventory and supply chain through financial insights.

— There are a few key leaders represented in these survey results (e.g. Xero and Freshbooks), but then a long tail of providers (e.g. Quickbooks, Netsuite).

— This indicates lots of opportunity and headroom for Fintech vendors, as there are no dominant players in any given fintech sub-category.

— There also appears to be a greenfield for fintech upstarts, given that the “household name” brands on this list (e.g. Quickbooks, GoDaddy Bookkeeping) aren’t necessarily dominant.

Uptick

Stepping back, Fintech is having a moment. It continues to grow rapidly as a business category, including its SMB adoption. Fintech startups are generally thriving with exit velocity, funding, and public-market performance. It’s becoming a leading subsector of the broader SaaS universe.

Meanwhile, new fintech users shown above could represent permanent adopters — a concept that’s accelerated in the Covid era as SMBs are forced to accelerate their digital transformation. This sends them into the arms of SaaS providers to accomplish a range of operational and marketing functions.

We’ll return in the next installment to go deeper on other areas of the SMB fintech adoption. That will include top goals and what types of SMBs are adopting. Let us know what additional insights jump out at you from the above data, and stay tuned for more breakdowns in our Benchmark Bytes series.

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