Driving growth in the digital economy beyond a physical presence is a major challenge merchants face as they try to stay ahead in these times. New trends in technology force merchants to increasingly adapt their businesses to the new needs of consumers, who expect more speed, efficiency, and choices, while demanding less friction in their everyday lives. Generally, large and medium-sized merchants – chains and franchises, mostly – are more capable of adapting to the digital economy, as they can rely on streamlined processes and can typically access tools for going online and digitising their business.

On the other hand, the European economy is dotted with small merchants, often sole proprietorships      or family-owned businesses which, despite their small size, contribute substantially to the economy of the countries in which they ^[1]are located. Today, these establishments are struggling to stay afloat, pressured more than ever with the economic downturn and the mounting competition from online platforms. In Q2 2023, SME bankruptcies in the EU were at the highest since 2015. While the situation has since improved slightly, many SMEs continue to face difficulties. In fact, in Q3 2024, 36.3% fewer SMEs entered the market than those who were forced to shutter their businesses[2].      

FinTechs play a game-changing role in supporting these independent businesses to thrive and remain      profitable, paving a pathway for digital transformation in an increasingly competitive world. FinTechs are making innovative payment processing solutions more accessible, while making payment acceptance smoother and more convenient to merchants in stores and online, and at the same time providing customers with a quick and seamless shopping experience. Some FinTechs also provide alternative payment networks, independent from international and domestic card schemes, increasing the variety of digital payment methods available for merchants, e.g., Satispay-app in Italy, France, and Luxembourg. These alternative payment networks also allow merchants to accept digital payments for a lower fee and without additional acceptance equipment or dedicated terminals – often, a phone or tablet paired with an app will suffice.    

While payments are fundamental to merchants’ financial and technological needs, financial management for a small business needs to extend beyond payments, and should include analytics, marketing, and financial accounting solutions, financing options and more. For instance, FinTechs can help merchants in streamlining the management of their finances, simplifying processes such as tax compliance, and reducing the time spent on manual data entry. Furthermore, many FinTech companies provide merchants with innovative POS (Point-of-Sale) systems that merchants can integrate into e-commerce platforms to offer them a range of tools for customer analytics, inventory control, and customer data management. Moreover, modern Customer Relation Management (CRM) systems provided by fintech innovators also enable merchants to maintain strong control over their relationships with customers by providing them with GDPR-compliant storage of customer information and tools for marketing campaigns and customer engagement, while protecting consumers against fraud.

FinTech can make the digital transition smooth and sustainable for SMEs in the constantly evolving economic context, which today requires people and businesses to rapidly adapt to new technologies and market shifts  with limited resources. All in all, FinTech solutions can enhance SMEs’ performance, therefore increasing their competitiveness in the digital economy by helping them to combat and overcome the challenges of digital transition – making it crucial to continue to support consistent, robust, and adequate regulation that continues to support them in empowering Europe’s merchants to thrive.    

[1] Observatorium Confesercenti (Italian Confederation of Trade, Tourism, Services SMEs), based on elaborations of the Italian chamber of commerce data.

[2] Eurostat, Quarterly registrations of new businesses and declarations of bankruptcies – statistics.