Friend or foe? SMBs turn to new technologies like AI and digital payments for growth

With the advancement of technologies and digitization, small and medium-sized businesses [SMBs] are prioritizing investment opportunities to secure market share, with the growing support from financial firms that cater to their specific business needs.

We delve into two key areas – emerging technology and digital payments – where banks and other financial firms recognize the SMB community’s strong inclination to invest in tackling their challenges, as well as the complexities they may encounter during this transition.

1. SMBs consider emerging technology

When it comes to emerging technology, AI, in particular, has captured the interest of SMBs, with many keen to invest in this area. Research shows that the largest of small businesses are more excited about AI (33%) than product development (25%), social media (28%), and standing out among competitors (27%).

Gina Taylor Cotter, EVP & GM, of Small Business Products at American Express noted that small businesses’ interest in advanced tech solutions originates from their focus on expansion, hiring, and productivity tools to stay competitive.

“As businesses scale up, business owners often look to technology to help temporarily fill in gaps while they assess long-term needs,” she told Tearsheet.

SMBs’ interest in AI is also partly because the upgrade can serve as a differentiating factor for businesses that are quick to integrate it into their operations.

“The main way that small business owners plan to use AI is to differentiate themselves from competitors, while also streamlining bookkeeping, payroll, and hiring efforts,” noted Sharon Miller, President and Co-Head of Business Banking, at Bank of America.

In Tearsheet’s inaugural working group, centered on creating products for Gen Z, participating executives explored the technological obstacles confronting financial institutions. These hurdles range from outdated legacy systems to a need for more alignment between technology and the preferences of different generations.

Although not identical, a comparable ambiguity confronts SMBs. On one hand, they have limited resources to invest in costly technology upgrades. On the other hand, there’s apprehension about the unknown, particularly given their constrained budgets and small market presence, along with the fear of falling behind.

Attitudes toward AI within the SMB community, however, vary. While some businesses are eager to delve into its capabilities, others have only recently taken the plunge, integrating AI into their operations within the last year. The level of technological integration, however, varies depending on the nature of their business and the resources they can allocate, but dedicating funds for tech enhancements has become a key priority for many. Then some are hesitant and still holding back. 

“Those who are skeptical about AI are worried about data and privacy,” said Amex’s Cotter.

While many sectors are eagerly embracing AI, particularly Gen AI, and competing to stay ahead in its adoption, SMBs at large are taking a more measured approach. Data shows that business owners [37%] who plan to use AI tools in 2024 have experienced a 12-percentage point decline since 2023. This indicates that the SMB sector is thoughtfully weighing the potential benefits and drawbacks of advanced AI capabilities instead of hastily adopting them.

“Business owners are testing and learning with AI to see how it works for them,” added Cotter.

Financial firms serving SMBs are, however, confident that once small businesses identify the best strategies to harness this emerging technology, AI will take root in this sector. Carly Brush, SVP, of Human Capital Management at DailyPay echoes this sentiment. She highlighted that even though two-thirds of businesses are not yet using AI directly, they are certainly engaging with vendors or tools that incorporate AI. When small businesses are closely involved with AI through their interactions with various tools and vendors, it brings them closer to full adoption.

Bank of America’s Miller aligns with this outlook, too. ”Despite cooling opinions on AI for the year ahead, AI technology will continue to improve and we expect to see small businesses taking advantage of those tools as the market matures,” she said.

This indicates that currently advanced AI solutions are still finding their place within the SMB community. While business owners navigate the best use cases of emerging technology, a growing cohort is focusing on leveraging AI for marketing, advertising, and communication purposes to articulate their business’s value proposition as an initial move. This differs from directly integrating AI into their core tech stack, suggesting a calculated and strategic approach.

“AI has become a large success with SMBs’ marketing and communications efforts. The technology makes it much easier to generate content, build campaign lists, and develop more professional stories and presentations that help convey the value proposition of the business,” said Amy Dinkar-Patel, Head of Small Business & Commercial Distribution at TD Bank. “The payback of using AI can be immediate in terms of these efforts.”

This trend is also evident in a recent study, where Amex’s Cotter highlighted that one-third of small businesses are set to incorporate AI tools in 2024, focusing mainly on advertising (48%), marketing (46%), and customer service (46%).

2. Digital payments coming to SMBs

Besides AI, SMBs are also channeling their investments into digital tools. This involves integrating various new digital technologies, such as performing more banking online, accepting cashless payments, or bolstering their social footprint, according to Bank of America’s Miller.

In the quest to streamline operations and spur growth, the surge in investment and adoption of digital solutions within the SMB sector mirrors the growing interest in AI investments. Veronica Fernandez, Senior VP and Regional Head of Visa Commercial Solutions for North America believes this trend is further propelled by ongoing challenges such as inflation, supply chain problems, and hiring issues, many of which she expects will persist throughout this year.

Moreover, the investment in digital tools is also motivated by the challenges associated with growth. As businesses expand, they encounter additional hurdles such as financial management and accounting, time constraints on critical tasks, and addressing customer-related concerns.

David Talach, Senior Vice President of QuickBooks Platform and Money Offerings at Intuit, underscores the significance of investing in tools that automate administrative tasks. He argues that such investments enable businesses to dedicate more time to cultivating customer relationships and expanding their operations, which are pivotal for fostering growth.

One of the key areas in the digital landscape where SMBs are particularly directing their attention and investment is in payments. 

While the pandemic expedited the adoption of digital commercial payment methods among SMBs, they still lag in other aspects of payments. Consequently, relying on payment methods like cash, checks, or ACH/wire payments presents challenges in cash flow management and reconciliation. 

This can impede SMBs’ ability to capitalize on the rapid introduction of new products in the payments industry due to resource limitations compared to large corporations, according to Laura Shelton, Global Head of Business Travel & MIS Solutions at Discover Global Network.

“SMBs are eager to manage their commercial payments with the same efficiency and ease found in consumer-related transactions,” she said.

According to Shelton, these factors are expected to drive a surge in investments in commercial payments, making it a key area of focus over the next 12-24 months. Nearly half of SMBs are either open to or actively pursuing investments in this domain, particularly in areas like Level 3 data processing, virtual card numbers, and travel accounts, she said.

Additionally, DailyPay’s Brush believes that payroll in payments is another significant area of interest for many small businesses looking to invest in modern digital solutions. She notes a rising trend among businesses, transitioning from manual to advanced cloud-based systems for specifically managing their workforce and payroll. 

The investment spotlight shines on both advanced AI and digital payment solutions for SMBs, with potential intersections, as highlighted by prominent industry leaders in financial institutions and firms focused on SMB services. While digital payment adoption currently outpaces that of emerging advanced AI solutions among SMBs, there is anticipation for the AI market to mature and potentially converge with digital payment systems down the line. 

According to Shelton, as SMBs aim to deepen their expertise in artificial intelligence, this evolution could pave the way for AI to influence and enhance their commercial payments strategy in the future.