For this episode, I’m joined by Darren Parslow, global head of Visa Business Solutions.  Darren and I chat about the innovation in the B2B payments space over the last few years. We discuss how Visa helps SMBs enhance their money flow operations. Lastly, we look to the future and I ask Darren what advice he would give to small businesses looking to digitize operations to better manage cashflow and expand payments beyond the point of sale to grow their businesses.

Darren Parslow is my guest today on the Tearsheet Podcast.

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The following excerpts were edited for clarity.

First, thanks for having me. I’ve been at Visa for about 20 years in a variety of different roles. I currently run our Visa Business Solutions Group, which is all of our commercial payments, from small and micro businesses to middle market, and then large market and Treasury services. So it’s a fun group. I’ve been doing this for about nine months now. I’ve had different stints in this space, and actually started my career in small business banking.

I think we’re in this new era of digitization for small businesses. And we often talk to our banking and credit union and fintech clients, around the changes that have happened in particular since COVID. And I’m sure that in other interviews, you’ve had a lot of post COVID trends, and this will be no different. As you know, small businesses really have become much more digitally savvy, and needed to by necessity.

We’ve seen a huge uptick in online sales. In fact, one study we just did said that over 90% of small businesses that we talked to attribute their survival during the pandemic to online and ecommerce sales. The good news there is that technology is opening up a ton of opportunities. Sometimes it’s hard to draw the line from payment to broader topics. But when you think of what digitization has done in the payment space, allowing faster, more immediate payments in and out of a small business, it helps business owners with things like staffing shortages, and supply chain shortages, and even inflation. So there’s just a lot of real time impact of digital payments since COVID.

But to be honest, there’s still work to be done. One of the things that we like to say is that business owners are expecting us to kind of consumerize their business lives, if you will. You know, in our consumer lives, we expect this immediacy and efficiency and security and everything mobile, and B2B payments aren’t there yet. And we are working hard with our partners and clients to take them there. There’s no reason why B2B payments shouldn’t be as modern as consumer payments.

I think that banks, credit unions, fintechs, and financial institutions, in general, are playing a huge role in kind of this innovation game. There’s just a lot that they can do. But let’s be clear, there’s still a lot of whitespace in the cash and check space. Our most recent study shows that check is still about 23% of payments and cash has about 7%. So really 30% of transactions in the US are still cash and paper which are incredibly inefficient for a small business owner to manage their cash flow, whether it’s on them getting paid or them paying with those means.

So there’s a lot that our clients and partners can do to attack the cash and cheque space. The good news there is that when you look at consumers, and you look at some of those studies that we’ve done: consumer preference for cash has gone down markedly since COVID. We’ve been tracking this for years and years. And cash preferences were stuck around the 23% range for a while. Now, it’s down to 19%. So a 4% decline, which is is literally five to 10 years of change wrapped up in a pandemic period. Actual share transactions by cashing a check — if you’d look at those same businesses and you look on our network, 35% pre pandemic levels are now down to 29%. So, 4% and 6% changes in these metrics is good news for all of us.

And then as it relates to the innovation that we see happening, particularly with our fintech partners, as well as with some of our more progressive banks, everything from digitally onboarding small businesses, and not requiring in person or branch channels — they really doubled down in on streamlined underwriting. And in some cases with fintechs, they serve industries vertically, like Supply Chain Finance Options for small businesses. And then there’s been a massive uptick in reporting and expense management and card management digital players. Expense management used to be controlled by a lot of the bigger platforms. But now, particularly with virtual cards, you’ve got players that are turning expense management platforms and ecard management platforms to grow share tremendously — the likes of Ramp and Divvy and some other partners of ours. Our role at Visa is just to enable all of these digital only progressive platforms, whether they’re banks or fintech partners.

I’ll just set some context. First, when you think of the digital ecosystem, it’s all predicated on seamlessness and streamlined payments and getting payments in and out quickly, because the number one thing that’s important in our small business space is cash flow. It’s the number one reason why small businesses fail. It’s why they have, in some cases, problems expanding fast enough. So we’re acutely attuned to that, and trying to make sure that all of our core products help with cash flow.

So faster payments, taking online payments, setting yourself up for ecommerce payments, and getting things like credit lines. using credit cards as a cash flow tool, extending your days payable from one day with cash and immediate to seven days or 10 days with a check to 30 days is a fairly fundamental way to increase your cash flow.

And then I mentioned virtual cards before. It’s an area where we’re really focused on and our clients are, as well. I think it’s probably the fastest growing trend that we’re going to see in our small business portfolios around the world. A virtual card allows a small business owner rather than to give their employees a card — physical plastic — you can provision in a single card for a single purpose with a preset and only available for certain time period. You can provision that to an employee or to your own mobile device. And think of a use case where you have an infrequent traveller and your employee needs to do that once a year business trip out to a trade show. They can use that virtual card on their mobile phone for that one hotel night that they need, rather than the owner having to give out cards to a whole bunch of employees, which we all know can be a pretty scary prospect for some small business owners. So these virtual cards also allow small business owners to pay their invoices and their suppliers virtually — they’re connected to larger companies, ERP systems. I just think it allows that owner flexibility to control in a way that they didn’t have before.

We also know that there are times when suppliers don’t take cards — as much as we would love everyone to take cards, we know we’re not quite there yet. And in that circumstance, we’ve teamed up with a whole bunch of partners that we call business solution payments providers. And these guys step in the middle of a transaction, so the small business owner can use their credit line, take advantage of that working capital flexibility that our products give, pay the what we call a BSPP, but companies like Plastiq will go and pay the supplier in the format that the supplier demands, whether that’s ACH or something else. It allows a small business owner to achieve that working capital benefit, but also to stay in good terms for suppliers, which is super important. Those providers outside the United States have started to add additional value added services to their business model. So in places in Latin America and Asia Pacific, they provide tax ID numbers to invoices, which is very important in some jurisdictions. So it’s an interesting space that’s growing pretty rapidly. We’re pretty happy about that. And then, for small business owners, specifically, we’ve built a practical business skills site which gives advice to small business owners, whether that’s promoting their business or managing their employees, but some some very specific small business owner advice.

We’ve built a lot of loyalty programs. Our Visa Savings Edge program allows small business owners to get discounts. This is like Intuit, QuickBooks, MailChimp, or Microsoft advertising, where you get the discount, and then you see a credit on your next monthly statement. That’s another way to help small businesses. Overall, Visa as a company has dedicated over 200 million in the last couple of years since pandemic focused on small business recovery, small businesses tools, and really setting up this enablement of a more digitally savvy small business owner and what those experiences, demands are. In fact, it was this month two years ago that we made a commitment to digitally enable 50 million small business owners. So far, we’re over 30 million — over two thirds of our goal and on the way to surpassing that.

One of our crown jewels is CyberSource, which is a world class ecommerce platform that allows a small business to take payments of any type online, POS, in the mail, on the phone, but also has very sophisticated fraud tools and support. It’s really an end to end small business platform. And that’s been deployed by many of our partners around the world.

As much as small business owners became more digitally savvy since the COVID, so did fraudsters. They’re not any more lazy than they used to be. Going back to some of our consumer research recently, we know that a third of consumers have stopped using a brand or shopping at a store because of a fraudulent charge. We know that 69% of US survey respondents had complaints around internet fraud. On the Visa network, we witnessed seven cents out of every $100 spent in fraud. So 0.0007 on the dollar, if you will. And that seems really low, but for a small business owner, that level doesn’t really matter, right? Because anytime there’s a lapse, it’ll have lasting consequences.

So one of the things that we try to do is constantly remind our small business owners and our partners about some things that actually sound pretty banal, but are incredibly important. Things like updating your software all the time, dealing with those pesky security patches — to actually do those. And also, when you’re setting up acceptance, make sure that you take advantage of the fraud tools that your payment provider offers, and be in constant talks with your payment provider because these tools are changing and getting enhanced all the time. I will say that our clients and advisor contacts have never been more focused on cybersecurity and fraud prevention. You know, in the last five years, we’ve spent $9 billion on boosting cybersecurity and reducing fraud. So it is one of the pillars of our brand promise and something that we take very seriously.

At Visa, we’ve started using 2019 as our baseline to do projections on our projections and on revenue. It’s a good thing for people to think through: if you use 2020, 2021 numbers, whether that’s for ordering inventory, or managing employee expense, managing healthcare benefits, you’re going to get some wacky results, and you could end up making some mistakes around those numbers. So we found using 2019 is a good baseline project what the future might look like from a growth perspective.

Follow your customer and where they’re going. This became very clear in COVID, because customer experiences and behavior did change so much. There’s a lot of chatter as to whether they’ll ever come back to pre pandemic experiences, or whether we’ve got permanent change in front of us. But the recent example during COVID was gym owners — whether they were big chains or small gym owners, they shut the doors during COVID. There were some gym owners who thought that because they couldn’t have on premise gym experiences, they had to give refunds and shut down their business. There were others that very quickly morphed to where the customers were ,realizing that customers wanted to exercise more than ever shut up in their homes. And they went to online classes,and they gave dietary advice. And they did social distance programs in parks. They quickly adapted their business to where their customers were. And they survived and they thrived. And now gym memberships are up higher than they’ve ever been.

That’s a specific example, but customers have changed. When I speak of digitization, it really is more than just ecommerce, it’s more than just payments as a means to get something done. It’s really taking advantage of the overall not just ecommerce opportunity, but digital opportunity. Remember that that those 90% online sales in ecommerce were the reason for their survival and pandemic. Those same small businesses said that ecommerce sales are upwards of 50% of their revenue today. That’s a really big jump. And if you look even in the retail small business space, which is probably the last to go completely online, even there, we’re seeing online sales upwards of 28%, approaching 30% of total sales, which is a big jump from when they were.

Then finally, as a piece of advice. gig economy and workers have changed. And so take advantage of some of the digital programs that are out there for your employees and use it as an advantage. Everyone’s facing staff shortages today — one of the main things that can keep employees and recruit employees is the ability to get their wages very quickly. We’re part of a whole bunch of players in the space right now with what we call earned wage access. That’s the ability to access your wages on a more frequent basis, whether that’s weekly, or even daily. If you’re a rideshare driver or if you’re an Airbnb or VRBO property owner, you want your wages in a real time way and not what is traditionally in a monthly way. We’re seeing companies that are having competitive advantage, and some that are falling behind, very specifically around the frequency in which they pay their employees. If you’re a micro business, you may act more like that employee than a larger small business. And there are faster settlement options now that are available, right? So getting paid as a merchant, far quicker than you used to, those options are available through many of our payment providers. It’s one of the biggest trends that we’re seeing right now on that side of the house.

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