VCA: The Tech-Driven Transformation of Business Finance

As SMBs embrace digital solutions, the landscape of commercial banking is evolving rapidly. 

New technologies and innovative players are reshaping how SMBs pay and get paid, presenting both challenges and opportunities for traditional financial institutions.

In its latest report, Visa Consulting & Analytics (VCA) reveals the B2B commercial payments market represents a staggering US$145tn opportunity within the broader US$200tn market for both commercial and money movement transactions. 

“SMBs are generally looking for simpler technology onboarding, faster settlements and lower transaction costs,” the report notes. This demand is driving the adoption of new technologies, particularly real-time payments (RTPs), which are projected to represent nearly one-third of all electronic payments by 2028.

The rise of RTPs and ePOS

The impact of these changes is already evident in markets worldwide. In Brazil, for instance, the central bank's instant payment system now accounts for 39% of all electronic payments. 

Meanwhile, in the US, RTPs have become the most common payment type, accounting for nearly half of B2B purchasing spending in 2024.

The point-of-sale (POS) landscape is also evolving, with many SMB owners adopting quick response (QR) codes and contactless, tap-to-pay acceptance methods. “We're seeing rapid adoption of new technologies like Tap to Phone or softPOS solutions, particularly among street vendors and in the restaurant sector,” VCA’s report details.

Embedded payment solutions are gaining significant traction, with in-app and online platform-integrated payment processes becoming increasingly prevalent. This trend is having a substantial impact on payment flows, as merchants and independent software vendors (ISVs) enable digital payments within their platforms and checkouts.

SMB sector: Growth opportunities for banks and payments firms 

The SMB sector is proving to be an attractive growth opportunity for banks and payment players. While traditional banks continue to dominate the market share for SMB accounts at 75% globally, digital banks have already captured more than 20% of the market. 

Many well-known challenger banks have a clear SMB focus, offering innovative solutions tailored to the unique needs of smaller businesses.

The ecosystem is further evolving with the emergence of payment enablers like ISVs and payment facilitators (PayFacs) offering vertical-focused, omni-channel solutions. 

In the US, 85% of acceptance is now driven by these enablers, with banks accounting for only 15%. This trend is mirrored in the UK and across Europe.

Technological innovation in the SMB space 

In the realm of lending automation, digital technologies are enabling new lenders to process high volumes quickly and restructure loans at minimal marginal cost. Open banking technologies are accelerating credit line scoring and improving onboarding processes.

Data visualisation and insights are becoming increasingly important, with rich performance-level insights being made available to SMBs to help them manage their businesses more effectively. 

“Fintechs, such as accountancy software providers, are delivering dashboards to give SMBs a more holistic view of key performance metrics to help track cashflow and working capital positions,” Visa’s report reveals.

Many new players in the SMB space are actively looking to help businesses pursue their growth ambitions. This support extends beyond financial and operational insights to include assistance with extending online presence, enhancing working capital capabilities and improving efficiencies.

Embedded finance is another area of rapid growth, with B2B embedded finance payments in the US market alone expected to surpass US$2.6tn by 2026 – a three-fold increase since 2022. This growth is driving new collaborations, such as Visa's recent partnership with Taulia to enable the use of payment credentials for enterprise payments made through SAP's ERP platform.

Card-based innovation continues, with virtual cards seeing significant growth driven by B2B transactions. “Virtual card spending is expected to grow more than fourfold to reach US$13.8tn between 2023 and 2028,” notes the VCA report. New security features, improved user experience and enhanced reporting capabilities are driving this growth.

In the area of acceptance innovation, solutions like Tap to Phone are presenting low-cost alternatives for SMBs to drive acceptance growth. The global contactless transaction value is expected to exceed US$10tn by 2027, with 94% of all smartphones globally being NFC-enabled.

As the SMB banking and payments landscape continues to evolve, financial institutions and fintechs must adapt their strategies to capture the opportunities presented by this dynamic market. 

The report concludes: “Understanding customer needs, developing targeted capabilities, optimising existing customer portfolios and creating innovative roadmaps will be crucial for success in this rapidly changing environment.”

**************

Make sure you check out the latest edition of FinTech Magazine and also sign up to our global conference series – FinTech LIVE 2024. 

**************

FinTech Magazine is a BizClik brand.