How UK fintechs can help SMEs accelerate payments digitalisation

Even before the coronavirus, which has had a dramatic impact on the global economy and small and medium-sized enterprises (SMEs) around world, cash usage was trending downwards in the UK. In fact, the UK Finance’s UK Payments Market Summary of 2019 showed that 28% of all payments in 2018 were made in cash.

There are a number of issues for SMEs when it comes to cash transactions.

This compares to 60% of payments in 2008, demonstrating just how rapidly the UK has moved towards digital payments. It’s important to note too, that nearly 85% of payments made by consumers were for spontaneous purchases. These will typically be in the retail environment, or for “odd jobs” requiring ad-hoc work from tradespeople, rather than regular monthly payments for services like Netflix

There are a number of issues for SMEs when it comes to cash transactions. Retailers continue to struggle with the management and security of cash versus digital payments, the management time spent “cashing up”, the higher insurance costs related to holding cash on premise, and the cost of transactional errors or theft, to name just a few.

Time to cash, however, has always been a key challenge for SMEs. These firms often see their cash tied up in inventory or stock, which costs money to store and takes time to sell. Traditionally, cash has had the edge over digital and card payment in this regard, as there can be a 2%-3% transaction fee for digital and card payments and it can five days or longer for settlement.

However, with digital transformation affecting all industries, and the current pandemic raising the potential health hazard of cash, the need to accelerate the move away from cash has never been more evident. Since the UK has moved into a period of lockdown in response to the coronavirus outbreak, research from Link, the ATM Network, has shown that cash usage has declined by 50%. It’s not only that less cash is in general circulation as people leave their homes less frequently, there are also potential health issues with cash usage. Concerns have been expressed around handling cash and its usage with a number of reports claiming that the coronavirus may live on bank notes. As such, it has become an existential requirement for businesses to move quickly to be able to take payments by card (ideally contactless), rather than cash.

According to a 2017 report by the World Bank, there are approximately 400-500 million SMEs worldwide, and the vast majority, particularly in emerging markets are struggling with taking card payments.  Within Europe, our estimates indicate that as many as 33 million SMEs cannot currently access card and digital payments. Yet, as cash payments have declined rapidly across the globe, UK fintechs are presented with an opportunity to step in and help SMEs move to digital payments quickly, whilst ensuring that the transition doesn’t disrupt their business or disadvantage them.

There are already a number of challenger banks working in this area to help facilitate the move to card payments. Applications to help customers carefully track spend, split bills with friends and quickly and easily send micropayments, for example, have helped removed some of the barriers to digital payments, and mimic the flexibility of cash in social situations like whip-rounds and splitting the bill.

There is practical help too from providers like Growth Street. With GrowthLine, SMEs can unlock cash tied up in assets such as stock and unpaid invoices through easy to access, flexible working capital finance.

Innovation in ecommerce payment processing platforms and the ease of creating ecommerce sites quickly can help retailers move to online ordering and digital payments. BluePark and ShopWired are both UK businesses, offering ecommerce platforms which enable SMEs based in the UK to quickly set up ecommerce websites and take orders from customers online.

Taking the Asian market as an example, in China, digital wallets now dominate the payments space, Alipay and WeChat Pay together facilitate more than 90% of all digital transactions in China, representing over 60% of all online sales, according to MarketWatch.

There are opportunities to use existing technology to help move SMEs to digital payments too. We have developed the first software point-of-sale (POS), enabling merchants to accept contactless payments from cards and mobile wallets directly on any NFC-enabled Android device. By using existing technology, retailers can start accepting contactless payments quickly, efficiently and affordably.

The UK fintech industry has an enormous opportunity to help businesses accelerate the move from cash to digital and to help reduce the time for settlement, and therefore time to cash for SMEs. There will be effort required at a regulatory level and across the industry to support this. For this reason, the fact that Mastercard and Visa have increased their contactless payment limits in the UK from £30 to £45 in line with the British Retail Consortium decision, is welcome.

There will be challenging times ahead for all businesses, but if we can improve the ability of the UK’s SMEs, the backbone of our economy, to more quickly accelerate to digital payments from cash, we will give them the opportunity to help drive a speedier recovery.