Small business resilience and the evolution of ecommerce - comment

The continuing shuttering of small businesses on high streets across the country is being accompanied by an unseen birth of new, exciting digital-only small businesses.

Gaining access to ecommerce and point of sale data is now crucial for financial service providers, says Lord. Picture: Armir Trota.
Gaining access to ecommerce and point of sale data is now crucial for financial service providers, says Lord. Picture: Armir Trota.

Periods of economic downturn typically result in a decline in new business registrations, and at the beginning of the pandemic, it looked like UK small businesses were set to follow in this trend. For instance, statistics released by the ONS revealed that business creations slowed during April and May.

Despite this, Companies House figures reveal an overall increase in the number of new company incorporations in the second quarter when compared to the previous year. This is indicative of a plethora of new business ventures inspired by our changing way of life.

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Many of these emerging businesses are digital-first by necessity of the global lockdown they were born out of. Take, for instance, an independent hardware store that was already struggling prior to the pandemic. They may now find themselves in a position of renewed success, selling specific gardening tools via Shopify and Instagram marketing.

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While they may not have a strong credit history they do have a vast data footprint, owing to the numerous systems they rely on to run their business. Each data source, from their accounting package to their point of sale (POS) or ecommerce system, provides a valuable yet siloed view of performance.

However, the modern day small business expects systems and services to work together seamlessly and appears more willing to share their data in an open and automated fashion in order to ensure this. For instance, in September of this year, it was reported that the use of open banking has doubled in just nine months – an increase of one million users since January.

This increased appetite for interconnectivity between financial systems has opened the door to a much more collaborative, bespoke and diverse service between small businesses and their financial service providers. This is evidenced by the growing convergence of the POS, ecommerce and lending industries. Square Capital, Shopify Capital and Worldpay Working Capital are just some examples of funding facilities utilising transactional data to determine creditworthiness and offering finance at the point of need for small businesses.

Moving forward, customers who are willing to share their financial data digitally via accounting, ecommerce and POS package authorisation or open banking will likely benefit from a better service and more affordable products. For instance, lenders will be able to offer more favourable rates due to their enhanced ability to calculate risk and the notable reduction in the cost of serving these customers. The end result will be a shifting value exchange for small businesses whereby the benefits of sharing their data will become even more tangible than ever before.

The conditions of the global lockdown required existing businesses to pivot in order to remain viable. As a result, the period between April and July saw 85,000 UK businesses launch online stores or join online marketplaces. Many of these small businesses thrived during the pandemic as their adoption of ecommerce solutions coincided with a rapid increase in online sales.

Crucial

With the pandemic shifting the primary channel of trade online, gaining access to ecommerce and point of sale data is now crucial for financial service providers. The mutual benefits of doing so are multifaceted. For instance, commerce data can be used by lenders in particular to improve underwriting processes and credit decisioning. Small businesses will therefore benefit from a faster and fairer service that goes beyond traditional methods of credit scoring to consider their performance from multiple data sources in real time.

This cultural shift towards enhanced digitisation and the growing importance of ecommerce will likely have a lasting impact on the way we think about the financial health of small businesses. In order to take advantage of this opportunity, financial service providers will need to replace siloed data with a connected ecosystem of unified financial data sources.

Codat lets banks and fintechs plug into small businesses and the software they use, giving them seamless access to real-time customer data. We have more than 65 clients globally, across different industries from traditional lenders and multiple UK tier one banks to alternative finance, cashflow forecasting and POS providers.

Peter Lord, chief executive and co-founder at Codat

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