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IFX Payments Report Warns of Debanking Risks for UK SMEs Expanding Internationally

Four in five UK small businesses plan to increase their international payments in the coming year, but expanding beyond domestic trade could increase their risk of being debanked, research has revealed.

The inaugural Moving Money report by cross-border payment provider IFX Payments is based on interviews with finance directors nationwide and explores the experiences of British SMEs with overseas spending and identifies both drivers and barriers to positive change.

According to the report, 78 per cent of surveyed businesses expect to make more international payments over the next 12 months, driven by increased importing, exporting, or paying overseas employees. Europe remains the most popular region for expansion, with 64 per cent of SMEs anticipating growth there despite new trade and financial barriers post-Brexit.

However, amid this optimism, 76 per cent of small firms plan to increase hedging against currency risk, acknowledging the impact of recent geopolitical events like the Ukraine invasion, upcoming elections and the Israel-Gaza conflict on currency markets.

Will Marwick, CEO at IFX Payments, says: “SMEs are arguably the backbone of Britain’s economy, and the Government is looking to encourage more of them to export overseas as part of the UK’s trade strategy.

“Our Moving Money Report reveals that a large majority of firms are looking positively at their international trade, suggesting the ripple effects and uncertainty brought by Brexit and the pandemic are increasingly being seen in the rear-view mirror.

“However, cross-border payments continue to bring a range of challenges. For a business just scaling up and wanting to expand into overseas markets, the complexity of a traditional approach to making payments can present a significant barrier to getting started.”

Ring-fencing and debanking challenges

The report highlights that ring-fencing rules, introduced to separate banks’ retail and investment activities, create issues for SMEs, including the risk of being debanked. Banks have ring-fenced most small firms, defined as those with fewer than 50 employees or revenue under £6.5 million, into their retail arms. This separation makes it harder for banks to monetise these accounts, leading to a diluted service for business customers.

In the past year, major banks closed over 140,000 business accounts, representing 2.7 per cent of SME accounts held by the UK’s eight largest lenders. These closures were often due to concerns over financial crime and fraud or customers’ inability to provide requested information. However, the lack of transparency in these decisions, with only three major banks disclosing data on their risk assessments, raises concerns about fairness and consistency.

Graham Ridley, strategy director at IFX Payments, says small businesses deserve more support from the UK’s banks and regulators.

“While the intentions of ring-fencing rules were noble when they were introduced in 2019, it is clear they can inadvertently make it tougher for SMEs to get the financial support they need to grow. Debanking meanwhile is a threat no legitimate small business should face. More clarity is needed, and we look forward to future FCA guidance shining a light on the issue.”

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