Smallest Businesses Fall Behind as Main Street Goes Digital

As Labor Day approaches, Main Street businesses find themselves in the fourth quarter with more options to sell, receive payment and source goods than they had four years ago. However, a significant gap exists between the financial positions of small businesses and larger ones. According to PYMNTS Intelligence SMB Growth Monitor, 51% of small and medium-sized businesses (SMBs) reported higher revenue in February compared to the previous year.

In contrast, businesses generating over $1 million annually had an average revenue growth of 13.7% from 2020 levels by January 2025, while those with less than $150,000 in annual revenue saw a mere 0.6% growth.

Confidence in the survival of SMBs over the next two years also varies greatly. Eighty-two percent of surveyed SMBs expressed very or extremely confidence in their continued operation, with this confidence reaching 93% for businesses with annual revenues above $1 million, but dropping to 73% for those with revenues below $150,000. The 20-percentage-point gap represents the widest divide in PYMNTS Intelligence's four-year dataset.

As 2025 progressed into the current year, 34% of SMBs reported that rising costs for goods and services were negatively impacting their financial health. Microbusinesses faced greater exposure to cash-flow strain and late payments, while 26% of mid-sized SMBs feared an inability to hire new employees could threaten their two-year survival.

Inflation, as measured by the Consumer Price Index, has added to the challenges. Prices were 3.4% higher in July 2025 compared to a year earlier, with food prices up 3% and energy prices soaring 14.7%. For merchants with limited pricing power, the choice often comes down to absorbing the cost increase and reducing profit margins or passing the cost to customers who may already be tightening their discretionary spending.

The most frequently cited drag on SMB financial health in February was rising costs for goods and services, followed by labor costs, competition, and supply-chain disruptions. Small businesses have expanded their revenue streams in recent years, with 61% selling through physical stores and 57% through their own websites. The measurement of owned websites as a separate sales channel began in April 2024, and by February 2026, website penetration was within 4 percentage points of physical stores.

Delivery aggregators, social media, and owned mobile apps also saw substantial growth as sales channels. Among SMBs utilizing individual channels in February, 61% of delivery-aggregator users reported higher sales, while 51% of businesses using owned mobile apps reported increased sales. The flexibility provided by these digital platforms allows businesses to reach a broader customer base and manage inventory and promotions across various channels.

Payment options have also evolved in tandem with these sales channels. In February, 79% of SMBs accepted credit cards for both in-store and online transactions, with in-store debit acceptance rising to 79% from 73% in January 2022. Apple Pay adoption reached 30% from 27%, indicating that cash transactions, which still accounted for 82% of payments in stores, have declined to 82% from 87%.

Cross-border sourcing is also gaining traction among SMBs. According to the PYMNTS Intelligence Cross-Border Opportunity study, 57% of U.S. SMBs purchased goods or production inputs overseas. This trend was present even among smaller businesses, with 42% of companies generating less than $150,000 annually participating in international sourcing, rising to 59% for firms with revenues between $150,000 and $1 million, and reaching 73% for businesses earning $1 million to $10 million annually.

The benefits of international sourcing include access to new markets, but they also bring challenges such as currency conversion, payment fees, and supplier settlement times. Forty-three% of internationally active SMBs indicated faster payment processing and settlement as their top desired improvement from cross-border providers, followed by lower fees (37%) and enhanced security and fraud protection (32%).

As the fourth quarter progresses, Main Street businesses are confronted with two sets of numbers. The smallest SMBs have shown minimal growth compared to larger counterparts and express lower confidence in their ability to survive the next two years. Simultaneously, SMBs have embraced digital storefronts, payment options, and international suppliers, granting them greater control over customer acquisition and business management.

However, the flexibility offered to smaller firms will be tested in an economy where purchasing power is unevenly distributed, with the least financially cushioned businesses possessing more tools to reach beyond traditional customers, payment methods, and suppliers.