The US has lagged behind other countries in adopting new financial initiatives such as open banking and the digital economy. However, in the world of integrated finance—where financial products are integrated with non-banking software—the United States is leading the way.
According to a report by PSE Consulting and The Strawhecker Group (TSG), one-third of small to medium-sized businesses in the US use debt financing. through software-as-a-service companies. In comparison, only 11% of small businesses in the UK and 6% in Germany and France use this.
The study found that European entrepreneurs are not averse to SaaS solutions, but that software companies in the region have not been able to attract the attention of entrepreneurs with their integrated financial solutions.
“The number of small businesses in the US that have adopted crowdfunding is at an all-time high, according to Javelin’s latest small business survey,” he said. Don ApgarDirector of Merchant Payments at Javelin Strategy & Research. “This survey shows that nearly half of US entrepreneurs no longer have a business account at their bank. They are turning more to their technology providers.”
No Business Is Too Small
In the past, commercial e-commerce systems required multiple computers connected to each other to create an internal server. This setup meant that the company needed more capital to spend more on salaries.
However, with a customer integrated system (CIS), businesses do not need installed software to run their business. They can purchase a monthly subscription from a SaaS provider and schedule payments through a tablet or device.
“It’s made it more accessible to businesses, and now there’s no such thing as a small business to have software,” Apgar said. “That’s one of the differences between the US and Europe. There’s been a lot of interest in technology in the US, and companies like Square, Shopify, and Toast have made integrated financial technology affordable.”
While the technology may not be ubiquitous, merchants around the world have shown interest in switching from traditional payment processing to software platforms. A survey by PCE and TSG found nearly 70% of small to medium-sized businesses in the EU and the US said they would choose a software platform next time they choose a funder.
Beyond Included Fees
In Europe, integrated payments still mean payments within a software package. In the US, software companies are moving beyond payments to include a range of financial services.
“Top-selling companies like Toast are already offering value-added solutions like business checking accounts,” Apgar said. “Integrated lending is growing, as companies like Square already offer business loans to merchants. Players like Shopify, Toast, and Lightspeed are driving a lot of money from integrated financing, and they’re always looking for new ways to leverage.
One of the best features that integrated finance offers entrepreneurs is the ability to centralize accounting services. As SaaS platforms include many financial products, they have potential to be the central capital for all financial needs of the organization.
Small businesses can earn more than ever before, but often from different sources. They can pay monthly for SaaS subscriptions to inventory management tools and process credit and debit card payments. In addition, small businesses need a checking account, and the ability to receive and pay invoices from suppliers. They must also manage employee wages and benefits.
Many small businesses spend a lot of time and money hiring accounting professionals to coordinate with all of these sources. If an entrepreneur can reconcile all those tasks in one place and with little effort, it can be very difficult.
Managing all the accounting can be very time consuming. Even if a CPA is handling it, they will still need guidance in certain areas as they do not have in-depth knowledge of business operations. The rarest resource for small business owners today is time. By connecting all data sources and functions, many manual tasks can be eliminated.
The Technology Intersection
As software companies perform more financial services for entrepreneurs, the role of financial institutions in the commercial banking system has been reduced. However, this model has created opportunities for banks to use software companies as distributors.
Financial institutions can integrate their services directly into the business market to attract more customers.
“Fintech is the intersection of finance and technology, and software companies are looking for ways to cut banks out of financial services,” Apgar said. “If half of the merchants do not go to the bank to open their merchant account, then it is important. If software companies are already working on payment services, it makes sense for banks to cooperate with these providers.”