The shifting ground of payments: are banks and SMEs aligned?

Let’s, for a second, forget about the pandemic and consider how businesses were operating before the life-changing event.

Digitisation was high on the agenda for most corporates, from small and medium-sized enterprises (SMEs) through to enterprise organisations. Without doubt, consumer behaviour was cascading into the SME world, both in terms of meeting customers’ expectations and how companies were operating. The increasing demand for “always-on” operations, the availability of real-time data, and the pressure of simple, digitally-savvy user experiences was forcing many businesses to discover new ways of working.

It’s safe to assume that in time, every business and consumer will expect immediate settlement as a norm.

Enter a seismic event like COVID, add to it new regulations, payment initiatives, and fraud prevention, and it’s easy to see how leveraging technology becomes critical for businesses to adapt and respond to evolving demands. This drive for digital transformation and the rise in consumerisation is all too evident in this year’s Business Payments Barometer, where the majority of corporate financial-decision makers ranked mobile technology and easier access to technology as the two highest drivers of change in 2020.

Suffice it to say, that during the pandemic, when the doors shut and conducting in-person trade came to a halt, the specific access and solution needs of smaller corporates were truly underscored. Post-pandemic, will banks be in a position to better support the needs of these businesses in the context of a corporate rather than a slightly more complex consumer? Are banks able to support the quest of their SME customers in keeping pace with this speedy evolution in payments? Most importantly, are the banks taking advantage of fintech collaboration to propel their own digital transformation to bring innovative, competitive, and reasonably-priced products to market?

The delivery of real-time corporate payments is a great example here. Combined analysis from Ovum, Lipis Advisors and Celent reports a predicted growth rate globally of 40% annually between 2020 & 2024. And the Payments Barometer highlights that corporates concur, placing real-time payments as one of their top priorities for 2020, up 12% on last year. In fact, only 16% of small business have not and plan not to use real-time payments, whereas almost half of the mid-sized organisations plan to adopt real-time payments in the next 12 months.

Looking ahead then, it’s safe to assume that in time, every business and consumer will expect immediate settlement as a norm. Given the fact that fintechs have developed innovative new access models for banks of all sizes to gain access to real-time payments, there’s little excuse not to deliver on the expectation… and swiftly.

While the introduction of the UK’s New Payments Architecture (NPA) will be the next big innovation in payments and will carry a weighty influence in driving this digital transformation journey, less than half (46%) of SME financial decision-makers claim to even be aware of it or know how to prepare. Similar percentages apply for their knowledge and preparedness around the new overlay services (request to pay, confirmation of payee and enhanced data) and next-generation open banking initiatives.

What’s more, 21% of small businesses claim to not have heard of any of these payment terms – a disappointing statistic considering the advantages they are likely to bring. Additionally, because many of these new initiatives have seen delays to launch dates, it’s probably of little surprise that the respondents who claimed to be unprepared cited “no urgency” as the reason.

What is apparent – on a global scale – is that more extensive support and education around the benefits or necessity of many of these initiatives are needed. Clearly, the information available to industry players is not reaching SME businesses as effectively as it could. Although smaller than their enterprise counterparts, the plea from SMEs for information and advice about the changing payments landscape is no different and is equally as important. So, who should be filling this void and supporting businesses in understanding these upcoming regulations and initiatives?

Respondents say it’s the banks. They confirm that they refer to their bank as the preferred source of information, followed by a financial advisor and then through their payment partner. In fact, small businesses claimed that they are significantly more likely to refer to their banks for information than medium and large companies, no matter the issue (52%).

Although this statistic is heart-warming for the banks, it also places momentous responsibility on them to ensure their SME customers are in-the-know about upcoming regulation, compliance requirements and new payment initiatives. But they are not alone, and the obligation doesn’t start and end with them. In fact, when UK Faster Payments was launched in 2008, PAYUK recognised that they had not done a good enough job of educating the market and made assurances that lessons had been learnt – this seems not to be the case and the challenge remains.

Either way, it is equally essential for any and all influential industry players to take responsibility whether they be banks, technology partners, industry bodies and market commentators. After all, it’s in their best interests to support and collaborate with the banks in broadcasting the messages and in educating the market so that corporates are well-informed and fully prepared.

Faced with limited resources, both financially and in headcount, SMEs may be forced to be a little more discerning and pragmatic when it comes to adopting new regulations and digital initiatives. But that doesn’t necessarily make them averse to change. Perhaps it’s merely about improving education and providing reliable guidance in what action they need to take and when. No matter your view, the path for corporates to leverage payments modernization is set, so let’s do all we make to make it as smooth and easy to traverse as possible.