SME Digital Payments New opportunities to optimise The Paytech Revolution Series | 2018 Contents Executive summary 03 A short history of payments 04 SME payments shift from generic to specific 08 The shift to digital 11 Benefits of digital and card-based payments 15 Value added services: looking beyond the transaction 20 SME adoption of digital and card-based payments 23 Case study: B2Bpay and Zenith Payments 27 SME B2B Payments | Deloitte Research Report Executive summary Small and medium-sized enterprises (SMEs) encounter many challenges and complexities in running and growing their businesses. At the very core of every business is its ability to take in revenue (to sell) and to secure its supply of inventory and other inputs (to buy). We have found that significant value can be • Adoption of paytech to digitise payments This report seeks to help unlocked for SMEs by making or receiving and attract rewards is helping SMEs payments strategically in a manner that extract value for their business SMEs quickly understand attracts rewards, improves working capital, • Understanding paytech, selecting how the B2B payments drives efficiency or optimises processes. the right paytech partner and the landscape is changing right way to pay is key Both buyers and sellers can benefit (albeit and what opportunities differently) from more modern, digital* • SMEs now have options and payment capabilities such as card-based opportunities to digitise their this presents platforms, that are now emerging on the payment processes. Australian market. Overall, we found that digital/card-based This report draws on several quantitative payments represent an increasingly and qualitative research efforts conducted important opportunity for SMEs to domestically and internationally. improve the operation of their businesses and should be investigated by any SME Summary conclusions include: still using manual processes. • A revolution in payments technology We hope this report helps extract value (paytech) is sweeping the SME landscape for your business from your B2B payments. • Fintechs are developing highly tailored, innovative paytech value propositions to address the specific needs of SMEs *Non paper-based payments 03 SME B2B Payments | Deloitte Research Report 1 A short history of payments Technology change has made sophisticated B2B payment capabilities accessible to SMEs 04 SME B2B Payments | Deloitte Research Report Managing cash flow and the associated value transfers is at the core of every business. Behind every customer receipt, every payroll run and every supplier disbursement is a transaction that needs to be recorded and satisfied with a payment. It is therefore no surprise that the financial services sector invests heavily in advancing payment capability and technology and improving the value, efficiency and user experience outcomes that can be unlocked through modernising business payments. But to unlock this value, business operators and owners should be conscious of emerging payment trends and be prepared to act on the opportunities they present. Figure 1: Payments flow Your business accepts and makes a large volume of payments from vari ous methods and customers, e.g., busi nesses, government, suppliers, etc. Consumer payments Business Payments Typical methods: Typical methods: • Cash • Cheque • Card • Electronic (e.g., EFT) Illustrat ive Illustrative examples: ex amples: • Rates • Suppliers • Services Your business Characteristics: Characteristics: High volume and low Low volume and high $ value payments $ value payments 05 SME B2B Payments | Deloitte Research Report Much has changed since the 1970s where receipts and disbursements were The “paytech” revolution processed manually, usually by cash or cheque. These payment methods impose has allowed modern delays, risk and frustrations which are digital payments to often complex and unnecessary. Modern address payment speed, payment mechanisms are becoming increasingly accessible for SMEs to efficiency, risk protection, automate, accelerate or de-risk and user experience payments and make for a better to deliver significant experience for all involved. opportunities for SMEs to For decades, technology has been a key optimise the operations enabler of advances across industry of their businesses. and within financial services. Changes in the payments landscape are a direct But not all SMEs are at consequence of technology making new the forefront of what is ways to transact possible. This “paytech” possible with their B2B revolution has also been accelerating, with digitisation lowering the scale required to payments – and many offer customised payments services and SMEs could unlock hidden providing access for SMEs to capabilities value with limited effort. tailored to their needs or even previously unavailable to smaller businesses. Imagine the comparative cost of running a business with the advantage of modern digital payment methods… but what is modern today? 06 SME B2B Payments | Deloitte Research Report As illustrated below, the 70s brought core In our current decade, digitisation is further computing advances enabling self-service shifting payments from the physical realm transactions using ATM machines. By the to the virtual realm, such as with mobile 80s, technology was supporting electronic payment apps. Whilst this shift makes it transactions through card schemes. easier and faster to execute payments, Technology collaboration of the 90s it simultaneously exposes some security brought about an ability to make remote risks that have driven responses such as payments (other than by cheque/mail). tokenisation (the effective anonymisation The broad-based adoption of the internet of card data). As we enter an era of in the 2000s saw the proliferation of cards exponential computing power, the act and a rise of alternative payment providers of making a payment is becoming more suited to online payments. seamless, even invisible, as the physical instruments for initiating payments are subsumed into apps and other digital processes, such as ride-sharing services. Figure 2: Changes in technology (1970-2020+) Broad changes in general technology have enabled corresponding changes in payments Era 1970 1980 1990 2000 2010 2020 Technology Technology Technology Technology Digital Exponential Core Enablement Collaboration Engagement General • Mainframes • Office computing • PC revolution • Internet • Mobile • Artificial technology • Distribution • Mini-computers • Network revolution • Cloud computing intelligence terminals • Word processing computing • Browser wars • Big data • Sensing • Core computing • Spreadsheets • Email • Customer • Analytics • Internet of things • Home computing • Relational engagement • Social media • Digital money databases • Intranet • Wearables • Quantum • Client-servicer applications computing applications • Broadband • 3D printing Payment • First ATMs • Credit cards • Telephone • Card proliferation • Chip protection • Invisible payments technology • EFTPOS cards banking • PayPal • Contactless • Proliferation of • Internet • Digital non-card real-time banking currencies payments • Bpay • Real-time • Digital cross- • RTGS payments border payments Rate of change 07 SME B2B Payments | Deloitte Research Report 2 SME payments shift from generic to specific Each business is unique and B2B payments are evolving to better fit the varied needs of SMEs 08 SME B2B Payments | Deloitte Research Report The historically complex and costly infrastructure required to make payments safe, secure and reliable has typically meant that until recently only generic payment solutions were offered to businesses. The technology was not flexible enough These services often take advantage for customisation by providers to be of the existing card infrastructure to offered to all by the largest users. ensure security (such as with mobile payment apps) or add value by leveraging More recently, however, advances such existing capabilities on-offer from the as digitisation and open architecture traditional financial services sector APIs, combined with a supportive (such as rewards programs) in new/ regulatory environment in Australia, innovative ways to improve the enabled providers to develop tailored economic value derived by users. SME B2B payment solutions that address the specific pain-points of SMEs, such as for enabling easily reconcilable rent payments by card. Figure 3: Driving force of change Whist payment services were historically only offered in generic form by banks, a confluence of forces have acted as change agents, giving rise to a vibrant ecosystem of specialists. Historically Driving force of change Today Banks only • Digitisation, technology change • Fintechs • Regulatory openness • Payments service specialists • Technological openness and ability • Tech companies of people to execute Generic service proposition Service proposition tailored to industry, • Customer expectation sector and specific needs Segregated offerings One-stop shop Product centric Customer centric All taking advantage of existing infrastructure 09 SME B2B Payments | Deloitte Research Report Smaller innovators (often SMEs themselves) are offering niche propositions tailored to the needs of SMEs The historical lack of competition in the SME payment space meant incumbents If you haven’t faced limited pricing pressure. The past decade has seen a number of niche examined the way your players enter the market with competitive SME business processes pricing, superior user experience and its B2B payments in