By Rob Straathof, CEO,Liberis Group
The race to the bottom is an age-old problem that we, as financial professionals are all too familiar with. Cutting costs often seems like the quickest and easiest option for standing out in the market and winning customers. Yet in the long term, slashing prices risks the health and potential of a business. Time and again we all fall into this trap. One set of companies which have historically been very prevalent with this sort of behaviour are payment providers, particularly those involved in the provisioning of payment solutions for small business customers. Along with customer service, price is often the main differentiating factor between payment providers. Consequently customers have little reason to remain loyal as long as the service works. To counteract this, payment providers must ingrain themselves more into the operations of a small business and act as a critical component to its success.
The power of partnerships
The good news though for payment providers is that the journey to becoming a critical component of a small business can be made easier via the help of partnerships with one of the new breed of fintech businesses. A partnership combining the specialist skillsets of a fintech that understands the needs of small businesses with the data and class-leading customer experience of a payment provider can create something of great use to both the customer and the brands working together. The growth and innovation in the alternative financing sector coupled with open banking legislation have opened the door for fintech partners to use existing data from payment providers to pull valuable customer insights. Data is often an underused resource for many businesses as it can be hard to sort through or even know where to start! This is particularly the case for payment providers as they often hold so much data, in so many different places, it can be a real challenge. This is where fintech partners can help. For example, technology platforms can do the heavy lifting and identify how much a small business customer generates and when their main trading times are. Identifying and using these data points are then the start of developing a powerful value-added service.
So, once a payment provider has selected and been fully set up with the right fintech partner, they can then begin to tap into specific pain points facing small businesses and look to address these issues. One issue, in particular, that is often among the biggest for small businesses is access to funding. In fact, recent research has shown thatless than a quarter of small businesses feel credit was readily available in 2018. With the pressure of increased business rates, rising wages and ambitions to expand, the need for extra funding has never been greater for the nearly 6 million SME businesses in the UK. Couple this with the fact that traditional banks are reluctant to offer smaller finance facilities due to their unprofitability, the struggle to keep afloat is very much an everyday fight for many small businesses.
Realising the potential
Payment providers can not only help small businesses keep afloat but enable their expansion plans too. Furthermore, payment providers can also reduce their own customer churn by offering funding products that meet and perfectly fit the needs of their small business customers. In doing so, payment providers will no longer be competing over price and can instead differentiate themselves in the marketplace through additional offerings.
Furthermore, by reviewing historic customer data, fintechs can even enable payment providers to offer small businesses pre-approved funding. By knowing when to contact small business owners and offer funding – such as ahead of busy seasons like Christmas – while also understanding the specific funding needed, payment providers and their fintech partners can get ahead of the competition by preempting the needs of their customers. This not only makes it more likely that a small business will take up funding, but also helps position payment providers as being more of a partner and less of a line on a bank statement.
Thanks to the introduction of open banking and the rise of fintechs and data analytics technologies, payments providers have a huge opportunity to end the price war. Partnering with innovative fintechs that understand the needs of small businesses, how to use payment data while also being quick and easy to connect to existing systems providers is a powerful market differentiator. By offering new services, payment providers can shift how they are viewed by their small business customers and instead be seen as the true partner that they are.