SMB Fintech: It’s Where the Money Is

We were intrigued by this guest post in TechCrunch. And what drew us to the piece was this headline “All B2B startups are in the payment space.”

The author, Jeff Coppolo, has more than 25 years in the fintech space. He is currently head of BlueSnap global business development and partnerships.

He draws upon the current rush by businesses large and small to accelerate their shift to new tech payment approaches. These new “corona-free” approaches could be via mobile apps, electronic invoicing, and automated clearing house mechanisms (ACH). 

According to Coppolo, some $150 trillion in B2B and B2C transactions take place every year. Technology companies have had their eyes on these transactions for years. Many of the companies we follow in the local and SMB SaaS space have integrated transaction platforms into their software solutions to capture incremental revenue.

A Sip Off of the Payments Firehose

From where we sit, many of those payments initiatives were attempts to mimic the good fortune of companies like Shopify that have been able to tap into the transaction stream. A stream that flows very quickly and smoothly to the bottom line.

Shopify reported that $17.4 billion in GMV (gross merchandise value) moved across its platform in Q1. That was a 46% increase from the prior year. Of that GMV, Shopify processed 42%, which means Shopify took a cut of $7.3 billion. Even a sliver of $7.3 billion is real money. 

So it is no wonder that companies in SaaS reputation, CRM, accounting, and certainly any vertical solutions are eager to get a sip off of the payments firehose.

Now, companies like BirdEye enable transactions between its merchant customers and their customers. BirdEye, like others in SMB SaaS, works with payment facilitators through revenue-sharing deals.

After all, neither Birdeye nor Podium is likely to have the necessary expertise (or interest) in issues like cross-border payments and fraud protection. But there’s also too much at stake to get these things wrong and risk delivering a failed customer experience. 

Missing Checks?

Coppolo argues that the independent software vendors (ISVs) that built many of these SaaS platforms neglected to consider getting involved in payments. He questions why, with all that money at stake and the complementary nature of the payments, that they didn’t participate in payments from the start.

According to Mastercard, there are $120 trillion in annual global B2B payments. And in the U.S., checks still account for upwards of 50% of $25 trillion in payment volume. 

Many had predicted the demise of the paper check years ago. It never happened, did it? Nothing like a global pandemic driven by a microscopic virus to accelerate the adoption by both the merchant and consumer of “touchless” payments to make a longstanding prediction finally come true. 

Checking on the Kabbage

Oddly enough, just as we were finalizing this post we came across the news that Kabbage is rolling out a checking account for small and medium-sized businesses.

Kabbage Checking will help SMBs access digital banking services. In the release, the company’s president says it’s helping more than 225,000 small and local businesses with financial management solutions.

The new service appears to be an effort to handle more of the small business’s cash on hand. In order to get small businesses to use Kabbage Checking, they’re eliminating opening fees. We can’t really imagine that if a smart business owner when into Wells Fargo to open a checking account and said, “Please no fees,” the Wells banker would say “no problem.” Kabbage is also offering 1.1 percent interest yield on monies in the account. Some of this effort is in conjunction with Mastercard, where users can create a digital wallet to pay bills. 

To us, this is one more step on a natural journey for Kabbage to become a full-service small business bank. It is an ambitious goal and one that we are eager to follow. But when we read about a new product called checking, we’re thrown back into a time warp. Perhaps they could have found a better product naming convention?

After all, we just read that the check, which supposedly was going away years ago, just might now be on its last legs. Time will tell.

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