B2B Online Purchasing and Payment Trends:

How Small Businesses Buy and Pay Online∗

A Market Platform Dynamics White Paper

October 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.

Introduction
There are roughly 5.8 million small businesses (SBs)1 in operation today – two-thirds of which
generate 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 market
jitters, the outlook for SB growth and spending remains strong. A 2007 survey by the National
Federation 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 SB
owners 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 their
revenue 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 our
study, we chose not to distinguish by industry or by years in operation and settled on a definition of SBs that was more
consistent with industry and analyst sources. We define SBs as any establishment with fewer than 100 employees or
generating 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’s

Statistics of U.S. Businesses (at http://www.census.gov/csd/susb/susb.htm) which, in cooperation with the U.S. Small
Business Administration, releases estimates of the number of business by receipts (or revenue) size every five years. In
2002, its last available release, the Census estimated that there were 5.5 million small businesses earning less than $10
million in annual revenue. Our calculation for 2007 assumes the growth in the number of businesses from 2002 to 2007
is 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).

_______________________________________________________________
 conducted their purchasing online than did consumers (65 percent). 5 Currently, computer
equipment, office supplies, even printing and shipping are examples of the kinds of online purchases
that 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 product
growth 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 have
also helped bootstrap many an SB. Often, leveraging personal credit is the easiest (and for some
entrepreneurs 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 employees7 and, as such, share many of the same
purchasing and payment characteristics as consumers (e.g., an increasing interest in shopping online
and the need to feel secure when buying online).

But there are some marked differences too. SBs are much more difficult to segment given their
inherent heterogeneity across type of business, industry, and size. And not all merchants that serve
SBs have an e-commerce capability. This, in turn, gives rise to diverse online purchasing behaviors
and, in turn, payment device preferences. Banks, financial institutions, merchants, and payment
networks must examine these and other critical issues in order to properly create and position
products that appeal to these enterprises.

Our work to better understand these issues began with an extensive review of existing research
related 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 in
the Appendix.8)

With this as context, we designed and administered our own survey of SB online purchasing and
payment behaviors to more than 700 SBs across the United States, all earning less than $10 million
in 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-level
survey findings are presented in this paper, including recommendations on the impact of these
findings to issuers and merchants interested in targeting SBs.

5 “Online Small-Business Payments: Understanding the Online Payment Preferences of Small Business,” Jupiter

Research, October 28, 2006.

6 “Customer Relationship Management: Optimizing Online and Off-line Service for Small business Customers,” Jupiter

Research, 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’s

series of research briefs on online behavior of small businesses (2006), and BAI Research’s report on small business
payments (2006).

_______________________________________________________________
 Key Findings

• Small business online purchasing and payment behavior mirrors consumer

behavior. 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 revenue
grows or as the years the small business has been in operation increase.
• The accounting department plays an important role in the purchasing and
approval process of small businesses. While in the smallest SB (less than $1 million
in revenue), the CEO is both the purchase maker and purchase approver, the
responsibility of approving the purchase quickly shifts to accounting for most SBs.
• Credit is an important feature of any payment method. Not surprisingly, for a
majority of small businesses, corporate cards and other payment instruments tied to
credit are the payment devices of choice. But there is also a growing interest by SBs in
alternative products tied to checking products.
• Transaction security is a chief concern and small businesses prefer not to
disclose payment card information when transacting online. Secure solutions that
offer 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 small
businesses. Given their size and resource constraints, SBs seek solutions that offer
built-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 other
payment alternatives representing spend on core business services and operating
expenses.

_______________________________________________________________
 The MPD Small Business Payment and Procurement Survey
In June 2007, MPD surveyed 721 small businesses in the United States spanning a variety of sizes,
industries and geographies. The survey was designed to provide insight into the three key research
areas described in Figure 1.

Figure 1: Key Questions to Answer

Research Area Key Questions
Online spend • What do SBs buy online?
preferences • How often do SBs buy online?
• How much do SBs spend online?
Online payment • What payment instruments are used to make online purchases?
preferences • What is the relationship of type of purchase to type of payment instrument used?

Online purchasing • Who buys and who authorizes online purchases and payment decisions?
processes • How does the profile of the decision maker impact the payment option selected?
• What are the most critical features of an online payment solution?

When identifying potential respondents, we elected to survey a cross-section of individuals in the

purchasing and payment processes. Respondents included owners and CEOs as well as senior
executives, accountants, administrators, and heads of purchasing in order to understand how their
role in an organization impacts the purchasing process and the essential features of a payment
solution.

The questionnaire was organized into three sections:

• General Respondent and Company Information. This section included a series of basic
questions designed to identify the respondent’s role in the organization. This section also
helped us classify the SB by revenue and employee segment, industry, geography, and years
in operation.
• Company Payment and Procurement Process. We collected information on the extent to
which companies use online banking and make online purchases. For those that made
purchases online, we also asked what they bought, how often they made online purchases,
how much they spent on average, and how they generally paid for their online purchases.
• An Alternative Purchasing Process. In this section, we tested respondents’ affinity for
alternative online payment solutions.

_______________________________________________________________
 A. The Sample

The SBs we sampled were well-distributed across revenue and employee segments. The majority (69
percent) have been in business ten years or more. Over one-third (36.5 percent) of the survey’s 721
respondents said they were the president, CEO, or owner of the SB, followed by administration (23
percent), and executive or senior management (20 percent). The sample represented SBs in
professional services (28 percent of the sample), followed by retail trade (12 percent) construction
(10 percent), and manufacturing (9 percent).

Figure 2 provides a snapshot of the survey sample.

Figure 2: Survey Sample Snapshot

$10M or Sole
100 or more,
more, 9% Less than proprietor,
18%
$100K, 15% 9%
$5 to $9.9M, 50 to 99,
1 to 4, 18%
10% $100 to 11%
$499K, 17%
$1 to $4.9M, 5 to 9, 16%
33% $500 to
10 to 24,
$999K, 17% 25 to 49, 8% 21%
Number of Employees
Annual Revenue

1 to 3 years,
Less than Admin., Other, 3%
6%
one year, 1% 4 to 6 years, 23% President,
11% CEO, or
7 to 9 years, owner, 37%
11% Purchasing
or procure.
4% Role of Respondent
Accounting Executive or
10 years or or finance,
senior mgmt,
more, 69% Years in Operation 14%
20%

_______________________________________________________________
 B. Online Spend and Payment Behavior

Online spend preferences

Seventy percent of respondents said their business makes purchases online. Within the SB segment,
those earning annual revenues between $100,000 and $1 million had the highest penetration of
online purchasing at 78 percent. SBs earning less than $100,000 had the lowest penetration rate at
just over 60 percent.

Those that didn’t make purchases online cited “not secure” as one of their primary reasons for not
doing so, followed by “not offered” by their suppliers. While the latter was a bigger issue for SBs in
the middle of the range (between $1 and $5 million in annual revenue), SBs of all sizes expressed
concern about the security of online transactions.

A majority of the SBs surveyed also bank online. Sixty-four percent of SBs surveyed said they use
online banking, and 59 percent said they also use online banking to pay bills. Here again the smaller
SBs (earning less than $100,000) had the lowest penetration rate of online banking with the
penetration rate growing as the SB increases in size.

When asked about online purchases, 85 percent of respondents said that office supplies, followed by
office technology (64 percent), travel & entertainment expenses (51 percent), publications (44
percent), printing or shipping services (43 percent), and raw materials (18 percent) represent the
activity transacted online. For the largest purchase category, office supplies, nearly half of SBs (45.9
percent) make monthly purchases, followed by 26 percent that make weekly purchases.

Online payment preferences

Regardless of purchase type, corporate credit card was the most popular form of online payment
option, followed by supplier credit and personal credit cards. The larger the SB in terms of annual
revenue, the more predisposed it was to using corporate credit cards to make online purchases as
well as any payment device tied to credit generally, such as supplier credit. This seems to suggest that
size also correlates to longevity, and thus credit availability.

Alternative payment methods, such as PayPal, had the highest penetration rate with the smallest SBs
(those earning less than $100,000). A closer look at the data revealed that many of these were small,
solely-owned retail firms which could also be doing a considerable amount of reselling. These
respondents also spent less online on a per transaction basis and are more likely to use personal
credit or debit cards to pay for those purchases.

Purchasing processes
In smaller SBs (those earning less than $1 million in annual revenue), the CEO makes and approves
most purchases as expected. As the SB grows in size, the approval of purchases shifts to senior
management or, even more predominantly, to individuals within the accounting department. In 39
percent of larger SBs (those earning more than $1 million in annual revenue), the accounting
department approves the purchase of office supplies (the largest purchase category), followed by
executive or senior management (28 percent), and administration (17 percent).

_______________________________________________________________
 Not surprisingly, the CEO is more likely to approve the purchase as the average transaction amount
increases and administration is more likely to approve the purchase the more frequently the
purchase is made.

In most SBs, the person who makes the actual purchase tends to be administration. In the case of
the largest SBs (more than $5 million in revenue), accounting begins to replace administration as the
key purchaser. Procurement also makes purchases for SBs that purchase raw materials online.

_______________________________________________________________
 C. Alternative Purchasing Processes

To better understand what SBs seek in an online payment solution, respondents were presented with
a hypothetical, alternative purchasing and payment solution and asked what about the solution they
did and did not like. Six attributes in particular were tested:

1. Online purchases can be made without owning a credit card

2. Online purchases are made without a line of credit extended
3. Online purchases are made without disclosing payment card information
4. Online purchases are approved before payment is released to the merchant
5. Online purchase approval and payment can be tracked online
6. Online purchase history can be set up to download into the company’s accounting software

Attributes 3, 4, and 5 were far and away the most appealing characteristics of an alternative SB
payment and purchasing solution. SBs, sensitive to online transaction security, highly valued (34
percent) the ability to make purchases online without disclosing payment card information. This
attribute was closely followed in appeal by those attributes that offer additional monitoring and
control over the purchasing approval and tracking process. That online purchases can be made
subject to approval before payment is released and that online purchase approval and payment status
can be tracked online was appealing to 31 and 36 percent of SBs, respectively.

The least appealing attribute was the lack of a line of credit. Twenty-two percent of survey
respondents felt that not having credit as part of a new payment process was a non-starter. SBs, like
most consumers, want to have their cake and eat it too: they do not want to disclose their payment
card information, they do not want to have to own a credit card, but they do want a credit line and
the ability to make purchases using it.

Figure 3 summarizes respondents’ reactions to these attributes.

Figure 3: Most and Least Appealing Attributes

% That Found It Appealing % That Found It Unappealing

1 2 3 4 5
34% 36%
31%
29%

22%
19%
16%
14% 13%
9%
5% 5%

Online purchases can Online purchases are Online purchases are Online purchases are Online purchase Online purchases can
be made without made without a line of made without approved before approval and payment be set up to download
owning a credit card credit extended disclosing payment payment is released can be tracked online into the company’s
card information accounting software

_______________________________________________________________
 It is interesting to note that one of the key attributes, integration with a company’s accounting
software, which received a mildly favorable response from SBs in our survey, received a very
favorable response by SBs in a similar survey conducted by BAI Research.9 (BAI’s survey is
discussed in more detail in the Appendix.) In our survey, the attribute was viewed most favorably by
SBs in the middle range of the overall SB segment (those earning between $100,000 and $5 million
in revenue). Perhaps it is the case that smaller SBs have not grown to the size where this service adds
value while the largest SBs have grown to a place where their accounting process is perceived to be
more complex than what this feature might support.

When asked how a purchasing and payment process that encompasses these attributes compares to
what each SB has now, 22 percent said they saw this as a more convenient purchasing process,
followed by 19 percent which viewed it as more streamlined and 16 percent said it seemed more
secure. Over one-third of respondents said if a service with those attributes were available today that
they were very likely or somewhat likely to use it.

Differences by SB spend preferences

The attributes described above are most appealing to SBs that have a more frequent online
purchasing pattern, that is they make online purchases daily or weekly. SBs that found these
attributes appealing also spend at least $100 per average online transaction and tend to use corporate
credit cards over other payment methods.

Frequent purchasers also especially liked the approval, tracking, and accounting-integration attribute
more than other SBs.

While all of the SBs, regardless of size, valued the ability to use a credit card without disclosing
payment card information, the lack of credit proved to be a deterrent – especially for the larger SB
segments (those earning between $1 and $4.9 million and $5 and $9.9 million in annual revenue).
This finding is also consistent with a series of Jupiter Research reports which found that as a
company increases in size, access to a credit line becomes more important.10 (See the Appendix for
more details on the Jupiter reports.)

9 “Small Business Payments in 2006: Finally Poised for Technology Solutions that Address Long-Standing Problems and

New Opportunities,” BAI Research.

10 “Online Small-Business Payments: Understanding the Online Payment Preferences of Small Business,” Jupiter

Research, October 28, 2006.

_______________________________________________________________
 D. Summary of Survey Responses

Figure 4 provides a snapshot of the survey results by revenue segment.

Figure 4: Responses in the MPD Small Business Payment and Procurement Survey
Revenue Segment
Less than $100K $100K =< R < $1M $1M =< R < $5M $5M =< R < $10M
n = 121 n = 217 n = 232 n = 146
Ave. # of Employees 1 to 4 1 to 10 10 to 24 100 or more
Ave. # of Years in 10 or more 10 or more 10 or more 10 or more
Operation
Representative Industries Very concentrated: Concentrated: mostly Less concentrated: Least concentrated:
mostly professional professional services, professional services, professional services,
services, some retail some retail, construction, construction, high-tech,
construction manufacturing, retail manufacturing, retail
Bank Online? No Yes Yes Yes
Buy Online? Yes – 60% Yes – 78% Yes – 70% Yes – 65%
If They Don’t, Primary Not secure, no credit Not secure, not offered Not secure, not offered Not secure, no credit
Reasons Why? card by suppliers by suppliers card
Who Makes Purchases CEO CEO, Admin Admin Admin, Accounting
Who Approves Purchases CEO CEO Sr. Mgmt, Accounting Accounting
What They Buy Online Office supplies Office supplies, office Office supplies, office Office supplies, office
technology technology, T&E technology, T&E
purchases purchases, publications
How Often They Buy Online Quarterly, followed by Monthly, followed by Monthly, followed by Weekly, followed by
Monthly Quarterly Weekly Monthly
How Much They Spend Between $10 and $99 Between $100 and Between $100 and $100 to $500 and $500
Online/Transaction $500 $500 to $1,000
How Much They Spend Low Low Mid-Range High
Online/Year ( < $10K/year) ( < $15K/year) (>$15K & <$25K/year) ( > $25K/year)
Essential Attributes of a • Does not require a • Does not require • Does not require a • Does not require a
Payment Solution credit card a credit card credit card credit card
• Does not require • Does not require • Does not require • Does not require
disclosing payment disclosing disclosing personal disclosing payment
card information payment card information card information
information • Offers additional • Offers additional
• Offers additional controls like controls like
controls like purchase approval purchase approval
purchase and tracking and tracking
approval and
tracking

_______________________________________________________________
 Conclusions and Recommendations
The line between SB’s personal and business payment methods blur.
It is evident that SBs have moved their purchases online for some of the same reasons that
consumers have. Convenience and the ability to cost-compare items make online shopping an
attractive option for certain categories of SB spending.

It also seems to be the case that a large portion of SBs use personal payment devices when shopping
online. In many cases, this is because access to credit via personal channels is the only alternative
available. The other reason SBs continue to leverage personal payment devices may just be that they
are still looking for a solution that fits their needs and to date the market for emerging payments has
not served them adequately.

Alternative SB payment solutions must appeal not only to the CEO, but to accounting too.
While the CEO has an important role in the purchasing process, that role diminishes as the small
business gets larger and is filled by the accounting department and administrators who are asked to
either approve or make purchases.

A successful solution should think about not only what attributes are imperative to the CEO, but
also what functionality and features may be attractive to individuals in these roles.

Do not underestimate the importance of credit.

A notable difference in payment preferences across SB segments is the extent to which they are able
to rely on credit from suppliers when purchasing online. While smaller SBs make online purchases
using credit from their suppliers 14 percent of the time, larger SBs rely on credit from their suppliers
63 percent of the time.11

One word of caution to payment providers, our research indicates that while a credit line is an
important, possibly even essential feature, many SBs seek more than simply access to credit when
considering an alternative payment method.

SBs, wary of online security, are less likely to divulge payment card information online.
The perceived security of online transactions drives SB payment preferences. For those that shop
online, one of the most attractive attributes of a payment solution is not having to disclose payment
card information. For those that do not shop online, transaction security is one of the primary
reasons.

A payment solution that offers a way to transact online without having to divulge key information is
highly desirable in the SB market.

SBs want a process with fewer moving parts.

Regardless of size, SBs like the ability to track and monitor their payments and purchases end to
end. Solutions that offer payment and purchasing controls as well as visibility into the payment and
approval process are appealing.

11“Online Small-Business Payments: Understanding the Online Payment Preferences of Small Business,” Jupiter
Research, October 28, 2006. In this instance, a smaller SB is defined by Jupiter as less than 5 employees and larger SB is
defined as between 50 and 99 employees.

_______________________________________________________________
 Similarly, the ability to integrate payments processes more seamlessly with existing processes,
including online banking, and internal accounting or finance packages, is also attractive.

There is plenty of room in the market for payment innovations.

Although business credit cards represent a high percent of spend for some purchase categories,
there is clearly still a large portion of SB spend that has not migrated to payment cards. With the
exception of travel and entertainment (T&E) purchases, SB owners pay with check an overwhelming
majority of the time. 12

Moreover, T&E is only two percent of overall SB spend. The two categories with the highest
percent of SB owners paying with checks – core business services and maintenance and operating
expenses – account for over 60 percent of SB spend.13 If SBs spend an estimated $4.9 trillion per
year,14 then nearly $3 trillion worth of on- and offline SB spend has yet to be captured with payment
cards or other alternative payment solutions.

12 Visa Commercial Solutions, “Small Business Perspectives: Small Business Cash Management,” May 2005. Note Visa
Commercial’s definition of an SB is also defined as earning less than $25 million in annual revenue.
13 Id.
14 Visa Press Release, “Visa Unveils Key U.S. Business Spending Trends,” June 28, 2007.Note that Visa U.S.A.’s

definition of an SB differs slightly from the definition of SB used elsewhere in this paper. According to Visa, SBs earn
less than $25 million in annual revenue rather than less than $10 million.

_______________________________________________________________
 Appendix: Summary of Secondary Research on SB Purchasing and Payment
This section presents the results of our research review of existing research related to small business
purchasing and payment processes. We relied primarily on three existing studies that we found most
useful for this purpose, described in Table A.1.

Table A.1: Key Existing Research Sources

Research Topic Major Source(s) Consulted Insights Offered

SB spend generally • Visa U.S.A.’s Commercial Consumption What SBs buy and how they pay
Expenditure (CCE) Index (Jun. 2007) generally
• Visa Commercial Solutions, “Small Business
Perspectives” (May 2005)
SB spend online • Jupiter Research’s reports on SB Online What SBs buy and how they pay online
specifically Shopping and Payment Preferences (Jul.
2006, Oct. 2006, & Apr. 2007)
SB payment and • Small Business Payments in 2006, BAI The typical SBs payment and
procurement process Research (2007) procurement process

General SB Spend and Payment Behavior

A useful gauge of how much businesses of all sizes spend is Visa U.S.A.’s Commercial Consumption
Expenditure (CCE) Index.15 Relying on data captured on its line of business card products as well as
some government data, Visa’s CCE Index is the business analog of the Bureau of Economic
Analysis’ Personal Consumption Expenditure (or PCE), a consumer spend index. Visa’s CCE is
derived from four criteria: inputs to production, wholesale and retail purchases of final goods, select
business capital expenses, and government spending on goods and services.

According to Visa’s most recent CCE release in June of 2007, SBs spent $4.9 trillion in 2006,
accounting for 30 percent of overall business spend. This was an increase of nearly 4.3 percent over
2005. Visa estimates that SB spending will sustain the same growth in 2007. SBs operating in the
retail trade industry were responsible for the largest proportion of spend at 20 percent, followed by
wholesale trade (13 percent), manufacturing (11 percent), real estate (10 percent) and construction (9
percent).

Visa’s CCE Index is also a commonly cited source for what SBs are purchasing. Again according to
the June ‘07 Index, SBs contribute a larger percent of their overall spend on raw materials and less
on core business services (such as includes management consulting, accounting services, and
administrative support), then medium- or large-sized businesses.

15 Visa Press Release, “Visa Unveils Key U.S. Business Spending Trends,” June 28, 2007.Note that Visa U.S.A.’s

definition of an SB differs slightly from the definition of SB used elsewhere in this paper. According to Visa, SBs earn
less than $25 million in annual revenue rather than less than $10 million.

_______________________________________________________________
 General payment preferences
Another SB study conducted by Visa is a 2005 survey of 458 SB owners, The Visa Small Business Cash
Management Survey, which gauges SB’s cash management behavior and preferences.16 According to
this study, while the vast majority of SBs use business checks to make purchases, roughly 40 percent
of SBs still rely on personal payment devices for specific types of business purchases. When asked
what type of payment vehicle was used to make business related purchases, 26 percent of SB owners
said personal credit cards, while 14 percent still write personal checks to cover business expenses.
Eighty-six percent of SB owners said they use business checks to make purchases. Over one-third of
SBs said they still use cash a majority of the time.

Overall, debit cards are used on a case-by-case basis to make business purchases. One in eleven
respondents of Visa’s 2005 study said that they use business debit cards regularly and one in 20 also
said they use personal debit cards as necessary.

It also appears that SB’s preferred payment method varies by purchase category. Rent, not
surprisingly, is most often paid for by check, while business credit cards are used most often to pay
for travel and entertainment expenses. Although business credit cards represent a high percent of
spend for some purchase categories, there is clearly still a large portion of SB spend that has not
migrated to payment cards. With the exception of travel and entertainment purchases, SB owners
pay with check an overwhelming majority of the time.

Online SB Spending and Payment Behavior

For an understanding of how SBs buy and pay online, we consulted three reports on SB online
shopping by Jupiter Research.17 A recurring theme throughout all three reports is that SBs use the
Internet to “comparison shop” and thus reduce the overall cost of supplies, services, and capital
equipment. According to Jupiter, 4 out of 5 SBs conduct business-related online shopping on a
regular basis18 and spend an estimated $40 billion in business services and products online annually.19
It has become the case that so many SBs transact online that they are, in fact, outpacing consumer
online purchasing (79 percent compared to 65 percent).20

16 Visa Commercial Solutions, “Small Business Perspectives: Small Business Cash Management,” May 2005. Note Visa

Commercial’s definition of an SB is also defined as earning less than $25 million in annual revenue.
17 “Small Business Online Shopping: Understanding Online Research and Purchase Behavior,” Jupiter Research, July 7,

2006; “Online Small-Business Payments: Understanding the Online Payment Preferences of Small Business,” Jupiter
Research, October 28, 2006; and, “Customer Relationship Management: Optimizing Online and Off-line Service for
Small business Customers,” Jupiter Research, April 12, 2007. Except where noted, Jupiter uses the same definition of
SB’s as defined earlier in this white paper (establishments earning less than $10M in annual revenue or employing less
than 100 workers).
18 Based on a 2006 survey of 500 SBs. “Small Business Online Shopping: Understanding Online Research and Purchase

Behavior,” Jupiter Research, July 7, 2006.

19 “Customer Relationship Management: Optimizing Online and Off-line Service for Small business Customers,” Jupiter

Research, April 12, 2007.

20 “Online Small-Business Payments: Understanding the Online Payment Preferences of Small Business,” Jupiter

Research, October 28, 2006.

_______________________________________________________________
 Not surprisingly, travel and entertainment purchases make up a large proportion (71 percent) of SBs
online spend, but other categories also performed well. More than 50 percent of SBs purchased
computer hardware, software, and office supplies online in the past 12 months.21

Jupiter also found that online spend is heavily correlated to the number of years in business. SBs
that have been in operation for less than 10 years make at least 25 percent of their purchases online,
while those in operation for more than 10 years spend less than 13 percent online.22 It’s likely that
newer SBs are run by entrepreneurs who are both familiar and comfortable with an online shopping
experience. And, as newer businesses become more established, existing businesses become more
comfortable buying online, and more merchants that cater to businesses migrate their catalogues
online, we would expect an even greater proportion of spend to be happen there.

Online payment preferences23

Results from a separate Jupiter survey show that while business credit cards account for a large
percent of online spend (64 percent), SBs still rely heavily on personal credit cards (39 percent) to
make online purchases. SB use of debit cards to make online purchases hovered at around the 10
percent mark – again just as Visa estimated for overall SB spend.

Jupiter also reported a direct correlation between years in business and payment preferences. Smaller
SB segments are less likely to use supplier credit and are less likely to use a payment device tied to
any kind of credit line. According to Jupiter, payment products such as debit cards, PayPal, or other
electronic fund transfer (EFT) products are used much more heavily by the smaller SBs than larger
ones. Whether this is because these firms elected not to use credit or are simply unable to get it, is
not clearly stated in the research. One would suspect, however, that it is the latter and not the
former.

One notable difference in payment preferences across segments of SBs is the extent to which they
are able to rely on credit from suppliers when purchasing online. While smaller SBs make online
purchases using credit from their suppliers 14 percent of the time, larger SBs rely on credit from
their suppliers 63 percent of the time.24

SB Purchasing Processes25

In 2006, BAI Research published results of a proprietary survey of 854 SBs designed to help retail
banks better understand what SBs are looking for from payment services. One of BAI’s key findings
was that most SBs would like to get more out of their online banking and electronic payment
services.

21 Jupiter Research (July 2006).

22 Jupiter Research (July 2006).
23 Research reported in this sub-section based on Jupiter’s 2006 survey of 500 SBs and summarized in “Online Small-

Business Payments: Understanding the Online Payment Preferences of Small Business,” Jupiter Research, October 28,
2006.
24 In this instance, a smaller SB is defined by Jupiter as less than 5 employees and larger SB is defined as between 50 and

99 employees.
25 Research reported in this section based on “Small Business Payments in 2006: Finally Poised for Technology Solutions

that Address Long-Standing Problems and New Opportunities,” BAI Research. Survey conducted in partnership with
Oracle and Unisys. Except where noted, BAI defines SBs as earning between $500,000 and $20M in annual revenue.

_______________________________________________________________
 BAI presented each respondent with a list of integrated payment attributes or features and asked
what they were likely to use. The list included:

• Straight through processing of payments from the business to the financial services provider
• A payment system that provides the business with access to its live intraday financial
positions
• An automated card-based expense processing system that ties in key merchant/business
partners
• An electronic payments package integrating accounts payable, accounts receivable, and
expense tracking
• Bank services that can be easily integrated into your payroll and HR systems
• An identity management platform that safeguards your business’ identity and access to
financial and other key accounts when conducting business electronically

What BAI found was that the “straight through” or the streamlined processing of payments from
the business to the financial provider is by far the most appealing attribute for SBs of any size – and
that feature becomes increasingly attractive as SBs get larger. At least 70 percent of SBs earning
$500,000 in annual revenue or more expressed interest in this feature.26

SBs were also asked if they would prefer to pay their business bills online. More than 60 percent of
SBs said they would prefer this way to pay, yet fewer than 30 percent of medium-sized businesses
expressed interest in this method.27

An electronic payments package that integrates accounts payable, accounts receivable, and expense
tracking and an identity management platform that protects access to financial and other key
accounts accessed online received interest from at least 60 percent or more of the SBs BAI surveyed.
The notion that SBs express interest in a secure identity management platform suggests that
although payment integration is important, it can be forsaken if it comes at the expense of security.

BAI also asked respondents whether they would switch banks to obtain better payment services
such as these. Over 50 percent said that they were very likely or somewhat likely to switch – and the
response was irrespective of the size of the SB itself.

26 “Small Business Payments in 2006: Finally Poised for Technology Solutions that Address Long-Standing Problems
and New Opportunities,” BAI Research.
27 The exception is medium-sized businesses earning between $10 and $49.9 million for which about 40 percent of

respondents said they would prefer to pay their business bills this way. Note in this example SBs earn less than $10
million in annual revenue and medium-sized businesses earn between $10 and $249.9 million in revenue.

_______________________________________________________________