• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
_______________________________________________________________ 
 
B2B Online Purchasing and Payment Trends:
How Small Businesses Buy and Pay Online
∗∗∗∗
 
 A Market Platform Dynamics White PaperOctober 2007
Introduction
 
 There are roughly 5.8 million small businesses (SBs)
1
in operation today – two-thirds of whichgenerate less than $500,000 in annual revenue.
2
These enterprises comprise over 95 percent of businesses in the United States and one-fifth of total revenues. Despite recent financial marketjitters, the outlook for SB growth and spending remains strong. A 2007 survey by the NationalFederation of Independent Business found that 65 percent of SB owners believed the SB climate was favorable or very favorable to the growth of their business and nearly a quarter of the SBowners surveyed said they were contemplating a "significant" expansion of their businesses.
3
And Visa recently reported that as of the second quarter of 2007, nearly half of SB owners expected theirrevenue growth to increase between now and the end of the year.
4
  As the SB market has grown, so has online purchasing as a percentage of overall SB spending.Research of 500 SBs published 12 months ago found that a larger percent of SBs (79 percent)
∗
MPD is grateful to MODASolutions for financial support of this research.
1
The definition of a small business varies widely across industry, analyst, and government sources. For purpose of ourstudy, we chose not to distinguish by industry or by years in operation and settled on a definition of SBs that was moreconsistent with industry and analyst sources. We define SBs as any establishment with fewer than 100 employees orgenerating less than US$10 million in annual revenue.
2
The best estimate of number of businesses in the United States by size is published by the U.S. Census Bureau’sStatistics of U.S. Businesses ( 
at 
http://www.census.gov/csd/susb/susb.htm
 
 ) which, in cooperation with the U.S. SmallBusiness Administration, releases estimates of the number of business by receipts (or revenue) size every five years. In2002, its last available release, the Census estimated that there were 5.5 million small businesses earning less than $10million in annual revenue. Our calculation for 2007 assumes the growth in the number of businesses from 2002 to 2007is comparable to the growth from 1997 to 2002.
3
Richard Breeden, “Owners Are Upbeat On Local Biz Climates,”
Wall Street Journal 
, February 26, 2007. SBs, according to the NFIB, typically have “approximately five people and averages gross sales of $350,000 annually” ( 
see 
http://www.nfib.com ).
4
Visa U.S.A., Small Business Spend Insights (2007).
 
In 2007, Market Platform Dynamics undertook a study to better understand the online buying, payment, and  purchasing behavior of small business. As part of the study, we conducted a survey of 700+ small businesses in the U.S. The survey tested the attractiveness of a series of online payment product attributes to determine the essential elements of an online purchasing solution for small businesses.Our findings reflect the many similarities that exist between consumer and small business online buying and  payment behaviors. Like consumers, small businesses worry about security, prefer to transact without disclosing  payment card information, and like built-in controls that allow them to approve and monitor their payment.
 
_______________________________________________________________ 
 
conducted their purchasing online than did consumers (65 percent).
5
Currently, computerequipment, office supplies, even printing and shipping are examples of the kinds of online purchasesthat SBs make online that comprise a market estimated to be $40 billion as of 2006.
6
 Not surprisingly, banks and the payment networks seeking ways to bolster their payment productgrowth curve view this market as an opportunity for innovation and growth. Credit cards, though,have always been a staple of how SBs buy – both online and offline. For decades, credit cards havealso helped bootstrap many an SB. Often, leveraging personal credit is the easiest (and for someentrepreneurs the only) way to get a business off the ground.Devising products that suit the needs of SBs transacting online is not without its challenges. Sixty percent of U.S. businesses have four or fewer employees
7
and, as such, share many of the samepurchasing and payment characteristics as consumers (e.g., an increasing interest in shopping onlineand the need to feel secure when buying online).But there are some marked differences too. SBs are much more difficult to segment given theirinherent heterogeneity across type of business, industry, and size. And not all merchants that serveSBs have an e-commerce capability. This, in turn, gives rise to diverse online purchasing behaviorsand, in turn, payment device preferences. Banks, financial institutions, merchants, and paymentnetworks must examine these and other critical issues in order to properly create and positionproducts that appeal to these enterprises.Our work to better understand these issues began with an extensive review of existing researchrelated to SB purchasing and payment processes in order to identify at a macro level what SBs buy,both off- and online, and how they pay for those purchases. (Results of this analysis are presented inthe Appendix.
8
 ) With this as context, we designed and administered our own survey of SB online purchasing andpayment behaviors to more than 700 SBs across the United States, all earning less than $10 millionin revenue annually. The respondents – spanning most industries – provided specific data about what SBs buy, how they pay, and what they find appealing in an online payment solution. High-levelsurvey findings are presented in this paper, including recommendations on the impact of thesefindings to issuers and merchants interested in targeting SBs.
5
“Online Small-Business Payments: Understanding the Online Payment Preferences of Small Business,” JupiterResearch, October 28, 2006.
6
“Customer Relationship Management: Optimizing Online and Off-line Service for Small business Customers,” JupiterResearch, April 12, 2007.
7
U.S. Census Bureau, Statistics of U.S. Businesses, 2004.
8
Three existing studies we found particularly useful are discussed: Visa U.S.A’s CCE Index (2007), Jupiter Research’sseries of research briefs on online behavior of small businesses (2006), and BAI Research’s report on small businesspayments (2006).
 
_______________________________________________________________ 
 
Key Findings 
•
 
Small business online purchasing and payment behavior mirrors consumerbehavior.
On many levels, the online payment preferences of small businesses are very similar to that of consumers. Preferences begin to diverge as the SB’s annual revenuegrows or as the years the small business has been in operation increase.
•
 
 The accounting department plays an important role in the purchasing andapproval process of small businesses.
While in the smallest SB (less than $1 millionin revenue), the CEO is both the purchase maker and purchase approver, theresponsibility of approving the purchase quickly shifts to accounting for most SBs.
•
 
Credit is an important feature of any payment method.
Not surprisingly, for amajority of small businesses, corporate cards and other payment instruments tied tocredit are the payment devices of choice. But there is also a growing interest by SBs inalternative products tied to checking products.
•
 
 Transaction security is a chief concern and small businesses prefer not todisclose payment card information when transacting online
. Secure solutions thatoffer the ability to transact without disclosing payment card information online are very attractive to small businesses regardless of size.
•
 
Built-in controls and end-to-end monitoring of payment and shipping are highly valued.
 The purchasing process does not end with a point-and-click for smallbusinesses. Given their size and resource constraints, SBs seek solutions that offerbuilt-in approval processes and integration with existing accounting systems.
•
 
 The market is big enough for new entrants and products
. A large percent of overall small business spend is still being transacted by check. An estimated $3 trillion worth of small business spend has yet to be captured on payment cards or with otherpayment alternatives representing spend on core business services and operating expenses.
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...