2024 Changed the Game for Small Business Growth Opportunities | PYMNTS.com

Main Street has been getting a digital makeover in recent years, and small to medium-sized businesses (SMBs) are among the biggest beneficiaries.

This crucial commercial cohort has faced challenges — ranging from navigating the aftermath of a global pandemic to managing persistent economic uncertainty. Yet the convergence of innovations in embedded finance, artificial intelligence (AI), and digital transformation has ushered in a transformative era for SMBs, redefining the ways they operate, compete, and scale.

By integrating these technologies, SMBs can embrace the opportunities available to enhance efficiency, improve customer experiences, and unlock new revenue streams.

Of course, the fact remains that small businesses are often forced to focus on managing their own cash to survive rather than investing it in back-office upgrades and other growth-oriented initiatives.

This balancing act of maintaining liquidity and working capital can prevent SMBs from fully capitalizing on the benefits of digital transformation, creating a cycle where resources are directed toward survival rather than innovation.

But in 2024, we saw the tides start to turn. 

Read more: Small Businesses Captured Outsized Gains From 2024’s Payments Innovations

Democratizing Financial Services

Embedded finance, once a buzzword confined to FinTech circles, has now become a cornerstone of SMB innovation. By integrating financial services like lending, payments and insurance into nonfinancial platforms, embedded finance eliminates friction in everyday transactions. For SMBs, this means access to tailored financial tools directly within their workflows.

The PYMNTS Intelligence report “Embedded Lending: From the Lender’s Perspective” found that 37% of SMBs are highly interested in switching to providers that offer embedded lending options. A separate PYMNTS Intelligence report, “How Data Sharing Boosts Credit Solutions for SMBs,” reveals that when SMBs agree to share their data, they not only receive more tailored credit options, but also borrow more and experience higher satisfaction from the lending process.

The stakes for credit access are high for SMBs, as those without access are five times more likely than those with access to express concerns about their survival.

Embedded finance also empowers SMBs to compete with larger enterprises by offering consumer-grade convenience. The integration of digital wallets, buy now, pay later (BNPL) options, and instant payouts positions SMBs as agile competitors in the digital economy.

Read more: The Top 3 Benefits Small Businesses Get From AI

AI on Main Street

2024 was also the year that AI leveled the playing field for SMBs willing to invest and experiment with the technology. With AI-powered tools, SMBs can harness localized and business-specific data to make smarter decisions, automate routine tasks, and personalize customer interactions.

The PYMNTS Intelligence report “New Report: SMBs Race to Critical Mass on AI Usage” found that 96% of SMBs that have used AI tools view AI as an effective way to streamline tasks. SMBs with increasing revenues and those generating more than $1 million in revenue are twice as likely to use AI as ones with decreasing or stable revenues.

AI also extends its impact to financial management. Cash flow forecasting — a perennial challenge for SMBs — has been revolutionized by AI algorithms that predict revenue fluctuations and identify potential cash shortfalls. Additionally, AI-driven fraud detection tools provide SMBs with enterprise-grade security, protecting sensitive financial and customer data.

Andre Machicao, senior vice president at Visa Acceptance Solutions, and Josh Scheer, president and owner of White Lotus Travel Design, told PYMNTS over the summer that SMBs can use AI to create marketing plans and product descriptions in minutes without a big marketing team to do it. The tech can also help streamline back-end operations so that scheduling, reminding a customer of upcoming payment deadlines and keeping on top of trends and news become automatic.

Still, many SMBs remain hesitant to embrace AI, often due to concerns over cost, complexity and implementation. 

Foundation for Digital Transformation

While embedded finance and AI represent powerful tools, their efficacy depends on a solid foundation of digital transformation.

“Eighty percent of small business owners say that having world-class, digital capabilities is extremely important and, frankly, expected from their bank,” Amount CEO Adam Hughes told PYMNTS in October, noting that when SMBs start looking for the right lending experience, digital is “table stakes at this point.”

Digital transformation also involves automating back-office operations, reducing the time and effort spent on manual tasks. Accounts payable (AP) automation, for example, streamlines invoice processing and ensures timely payments, enhancing vendor relationships and preserving cash flow. Similarly, digital payroll platforms simplify employee compensation, ensuring compliance with tax regulations and other legal requirements.

Ultimately, the intersection of embedded finance, AI, and digital transformation has helped create a virtuous cycle for SMBs. Embedded finance provides the tools; AI delivers actionable insights; and digital transformation ensures these technologies can be implemented effectively.