29. November 2017.
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The long tail of small and medium-sized businesses wags a long way down. Small merchants often make up the biggest group in an acquirer portfolio. They generate the most profit yet have the highest attrition rates. Why?

“The business of America is business,” said former US president Calvin Coolidge. Britain is a nation of shopkeepers. Germany has its Mittelstand, medium-sized, mostly family-owned businesses, and France its enterprises de taille intermédiaire. Small businesses are the motor to national economies and a major employer. They count for a lot. So, how are they being served?


Consumers say they hate homogenised high streets and prize independent businesses. Shopping locally seems to reawaken a type of nostalgia for a more honest, simple, unspun time. And keeping it local is akin to keeping it real. This explains the recent backlash against British bookstore behemoth Waterstones. It opened a number of seemingly independent bookstores in local communities under other fascias. Local competitors and consumers felt taken in by something that was not the real deal.

The psychology of local payment is particular. There are subtle drivers around holding up the queue. There are socially acceptable and responsible ways to pay, and what the seller prefers. “You do see some difference in people’s payment habits, particularly in small, independent shops,” says Amanda Rodgers, former deputy CEO, Waterloo Quarter Business Improvement District.

“People are more willing to pay in cash, because they seem to be more aware that it costs the merchant money to take a card transaction, in the way it doesn’t cost them a transaction-based fee to take cash.” Consumers make choices based on where they are paying and the perceived impact. But as the other party in the transaction, what do small businesses want?


Small businesses are just like large businesses in that they are focused on profitability. They are looking to increase revenues, cut costs and improve their businesses. Their primary concerns day-to-day are sourcing stock, serving customers and paying their staff and bills. However, this is where the generalisations end.

Small businesses cannot necessarily be segmented by industry sector, size or turnover alone. It is difficult to address such a diverse cohort in a meaningful way. As a result, the design and communication of payment acceptance is often not in ‘shopkeeper speak’. And betrays an industry stuck in its own echo chamber or filter bubble.

Merchants understand that their customers are different and they want to pay differently. There are millennials who were born digital and wish to pay digitally. There are the early technology adopters and those with a millennial mindset. Then, customers who hold to familiar digital payment methods such as cards, and those who simply prefer cash. Small businesses have to accommodate various ways to pay, and this has to be quick and simple.

Generally, customers come into small, local businesses knowing what they want to buy and how they want to pay. The traditional argument in favour of card payments — that they remove cash-on-hand limits and lead to more sales and bigger purchases — may not hold true. Similarly, just because something is positioned as innovative, it does not mean small businesses (or their customers) will be enthusiastic about it. Mobile payments is an example.

“When it comes to mobile payments, what is the benefit to the merchant of encouraging people to do something different at point of sale?” asks Rodgers. “If you want a merchant to help change the way people pay for things, there has to be something in it for them.”

Loyalty for local retailers is another example. Small businesses do not necessarily want Big Data. They need to know more about and reward their own customers. They want small data, if they do not already know the tastes and habits of their customers.


So, to what extent are the payment needs of small businesses being met?

“I think it’s getting better, partly because of the way that iZettle and PayPal looked at the small merchant market,” comments Rodgers.

Terminals became cheaper when mobile point-of-sale (mPOS) devices arrived 5-6 years ago. Pay-as-you-go pricing without a contract was a boon for seasonal traders or those with lower card volumes. Streamlined application, boarding and fulfilment simplified sign-up for first-time card acceptors.

mPOS also helped kick-start a change in thinking around cost, counter space and cloud. Small businesses could simply buy a card acceptance terminal, instead of renting one for a monthly fee. mPOS solutions took up less space on the counter and were more versatile, especially if merchants wanted an integrated solution or to add a new sales channel. And whereas memory and processing speed had limited the functionality of traditional POS, cloud-based POS offered more. Cloud-based solutions port the intelligence to another area, which turns the device into a receptacle for data.

“If you can do that, the user experience is going to be richer, more useful and will create more loyalty. Because the intelligence is based at a server level, the scalability also goes well beyond anything that a traditional POS device can do,” explains Alain Fernando Santana, chief administration officer, Spire Payments.

The POS now becomes the bridge between the face-to-face and e-commerce worlds, between the payment and value-added services worlds, and between transmitting information and analysing and personalising it for the benefit of the consumer and/or merchant.

“As soon as you move into mPOS, you move into the potential for data analytics in real time. As you’re in contact with an intelligent gateway while the transaction is being approved, you can also send a message, ad, coupon, immediate discount to the smartphone, which are all things that you cannot do with traditional POS,” says Fernando Santana.


mPOS acted as a catalyst for change around what merchants, and not only small ones, expected from their providers and terminals. The terminal is no longer a ‘dumb’ box sitting on a counter simply used for processing payment. ‘Dumb’ terminals have given way to smart POS, which add value around payment.

Hardware now comes with smart, customisable software, bringing enterprise-grade functionality to smaller businesses. Merchants can download apps from app marketplaces to help them manage accounting, inventory, staff rotas and so on. The terminal and relationship with a provider has become a one-stop-shop for commerce.

New providers specialising in the small business market exemplify this trend. They are thinking differently about the needs and pain points of small merchants. They are also diversifying into new services

to expand merchant relationships.

For example, payleven distributes prepaid cards for funds disbursement along with its mPOS devices to extend the proposition for card acceptance to the unbanked in Brazil. Similarly, iZettle launched an invoicing service in September to enable merchants to manage all payments – card, cash and invoice – from one place, namely the iZettle app. This new offering sits alongside their factored loans, reporting and customer loyalty services as an example of using data to drive new benefits, products and revenue.

Another part of the mPOS or smart POS phenomenon has been the ripple effect on innovation in the supporting ecosystem. New players have entered, each offering their own pieces of puzzle: application providers, intelligent gateway providers and so on. This makes for a more complex and commercially difficult ecosystem.

“Because the business model is not set, the next challenge is getting all the players to work together,” says Fernando Santana. “How do you get this to work economically? How does the revenue generated by each user make sense to justify the existence of all these players?”


The long tail of small and medium-sized businesses presents a huge opportunity. 92 percent of merchants across its markets fall within either the micro merchant sector with 1-9 employees or single-person businesses, according to an iZettle spokesperson. However, the flip side is challenges around technology, proposition development, data security for small businesses, servicing and communications.

mPOS has been a catalyst for change in how small businesses are served. New entrants have challenged fundamental assumptions around the five ‘Ps’ of marketing (product, price, place, promotion and people), which incumbents can learn from. In this way, mPOS has also been a FinTech success story. Rather than replace banks and acquirers, mPOS providers have found ways to address areas that traditional providers find difficult to serve due to cost, risk or process. They are serving the under-served.

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