Weak cash flow can be a killer for SMBs. According to the March 2021 PYMNTS Main Street Survivor Study, 30 percent of all small business owners reported that they’ve had to dip into their personal financial resources to support their businesses since the pandemic began. Eighteen percent of them have had to cut their full-time staff, and 15 percent have lowered their workers’ salaries.

And that’s just the most recent evidence of the damage caused by the pandemic. Historically, access to credit for SMBs has been limited, as entrepreneurs try to build up a credit record to access available capital. It's a frustrating and demoralizing cycle, i2c’s European GM Jonathan Vaux told PYMNTS in a recent conversation, something he can attest to from firsthand experience. But thankfully, he said, the emergence of the FinTech era is helping to break that cycle, enabling innovation in financial services to help SMBs flourish.

“What you now have is a group of historically underserved firms being serviced by new digital players who are using best-in-class technology,” he said.

And that fundamental shift in financial services and emergence of digital capabilities will change the face of commercial payments forever, said Vaux. What was once a complicated, challenging ecosystem to manage within the traditional banks has now fallen into the hands of smart people across verticals – a “plethora of new entrants” that are finding ways to reshape commercial payments to the needs of specific use cases, whether that’s the gig economy, payroll or emergency payments with installments attached.

What i2c is increasingly seeing from its clients is a desire for card services embedded as part of their ecosystem proposition, without the need to sign on for traditional card-based products. As Vaux said, the firm’s clients want to be able to design their card products to meet their specific needs, often creating “imaginative new user flows.” And while innovation isn’t specific to the EU, where Vaux is based, he believes the European market creates very specific pressures for innovation as a logical outgrowth of low interchange rates. The EU has driven innovation in the areas of mobile adoptions, contactless payments and open banking, he said, the last of which has been a powerful force in accelerating FinTech in the SMB market.

Regulatory And Interchange Pressures

Some of that forward motion has been pushed by regulatory pressures. But interchange – and the relative dearth of it in the EU as compared to a market like the U.S. – is also a rather powerful driver for a certain amount of inventiveness, said Vaux.

“When one can’t necessarily rely on the economics of interchange to fund things, I think that drives a degree of invention that is sometimes hard to come by when sitting on a very profitable business,” he explained. “There's not a huge incentive for change or innovation when you're operating well on strong margins because of interchange.”

In a world with rich interchange margins, it’s easier to put off change and inadvertently fall behind. The digital evolution of the connected world will be critical in commercials payments and beyond, he said, in terms of having the ability to anticipate and adapt to a dynamic environment.

Looking at how quickly the entire world changed during the last 12 months – with new business models, new shopping methods and new payments plays exploding on the scene – there has been an unprecedented need for agility for corporate players looking to thrive in a constantly changing market. It will be interesting to watch, Vaux said, as more changes and releases appear over the next 12 months to meet the oncoming rush of variant market forces.

It will be a challenging time for businesses of all sizes, but the necessary change will ultimately create a stronger playing field. “I think that in order for the economy to accelerate at this pace, it needs to break out of some of the traditional ways of thinking about commercial payments,” said Vaux. “Looking at the small business segment, times may be hard, but this is also one of the most thrilling times.”