Small businesses are facing a confluence of challenges: persistent inflation, ongoing labor shortages, and the rising costs of goods. In difficult macroeconomic conditions, efficiency and access to capital are more critical than ever. Policymakers have an opportunity to provide small business owners with a much-needed boost by modernizing the very infrastructure that underpins how businesses get paid. Intuit Small Business Council members will travel to Washington, DC, during National Small Business Week to educate policymakers on how they can do just that.
Payments friction: a drag on small business growth
The current payments system in the US isn’t built for the speed and demands of today’s digital-first economy. More than 90% of consumers report using digital payments, and in 2023, digital wallets accounted for 50% of e-commerce spending and $13.9 trillion in global transaction value. While small businesses are increasingly reliant on online transactions and serving a global customer base, they are burdened by a payments system that’s often slow, costly, and complex.
Ahead of the fly-in, members of Intuit’s Small Business Council shared how slow payments, high fees, and unnecessary complexity forced them to make tough decisions or grapple with financial strain. Dana Donofree, founder of AnaOno, explains, “For small businesses like mine, fees eat into already tight margins, especially now. We’re stuck weighing the costs of payments against the timing of payments. For businesses with tight margins, managing the costs of payment transactions isn’t just about convenience; it’s about survival.”
Joe Rice, founder of the digital marketing agency SOVRN, agrees, emphasizing that “Over a year, [transaction] fees could mean forgoing staff raises, delaying equipment purchases, or missing crucial hires. While I have a line of credit, I shouldn’t have to sacrifice my profit margin for faster payment.”
Small businesses often encounter constraints on their ability to plan and operate that are exacerbated by the current payments system. Lengthy payment processing times tie up crucial funds, creating cash flow bottlenecks that force businesses to make tough choices. Additionally, the fragmented payments landscape adds administrative overhead to business operations. The consequences of these inefficiencies impact everything from daily operations to long-term growth.
As Jade D. Chase, founder of 18Ninety Creative, puts it, “Being able to predict my expenses is critical, yet around 70% of my customers still pay by check, sometimes to avoid ACH-related fees themselves. Faster payments and instant access to funds would reduce my stress and empower me to grow my business more aggressively.”
The inability to access funds quickly creates a ripple effect, impacting inventory management and hiring decisions. Drick Bernstine, CEO of Be a Good Person, notes, “Faster, cheaper payments would boost efficiency and simplify how we manage our cash flow. Currently, hidden costs and delays, like waiting 3 days over a weekend, can delay our ability to process orders.”
For businesses that provide project-based services, payment delays can have a consequential impact. Ryan Ross, founder of Olivia Network for Education, explains, “Slow ACH and delays with international wire transfers directly impede our ability to begin new projects and hire the talent we need. We can’t start projects until we receive funds in our account, and slow payments systems have pushed our start dates back, sometimes up to 2 weeks.”
The future of payments: modernizing for the digital era
Faster payments would enable many small businesses to focus on serving customers, creating jobs, and growing their businesses. Sean Brownlee, founder of Ravenox, describes this: “We’ve carried unnecessary credit card balances to float operations while waiting for funds to clear. In some cases, we miss out on early pay discounts or have to pay rush fees for expedited shipments when inventory gets tight, which throws off our planning cycles and creates additional administrative overhead.”
VerveSimone Consulting founder Teniqua Broughton agrees, highlighting, “Payment delays can mean deferring or reducing my own compensation or dipping into business savings to cover obligations. Faster electronic systems would boost our efficiency and stability.”
Policymakers have the opportunity to address these challenges head-on by embracing payments modernization. This means updating the rules and infrastructure that govern how money moves to reflect the realities of the digital economy. A key step in this process is enabling trusted third-party payment processors to access Federal payment rails directly.
Trusted payment processor companies have been at the forefront of developing innovative payment solutions to meet the needs of small businesses. By granting them direct access, small businesses would gain access to:
- Reduced costs: Increased competition and efficiency would drive down transaction fees, putting more money back into the pockets of small business owners.
- Increased speed and efficiency: Direct access will enable faster payment settlement times, improving cash flow and reducing the need for costly bridging strategies.
- Fueling innovation: A modernized system will encourage the development of innovative payment solutions tailored to the needs of small businesses, making them more competitive globally.
The US isn’t alone in grappling with these issues. Other industrialized countries have already taken steps to modernize their payments systems. The results have been encouraging: increased competition, lower costs, and a surge in innovation, all contributing to stronger small business growth.
America’s small businesses deserve the same benefits. It’s time for policymakers to embrace payments modernization and create a playing field that empowers all businesses to thrive. By fostering innovation and competition in the payments ecosystem, we can build a stronger, more resilient economy for all.
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