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POST-PANDEMIC PAYMENTS – the next big challenge for SMEs

The world of online trading is maturing; but it is still feeling the pain points of a rapidly growing and evolving marketplace where entrants face multiple barriers to operate because established financial institutions have a fear of the unknown.

anders la cour banking circle paymentsAnders la Cour, co-founder and Chief Executive Officer of financial infrastructure provider, Banking Circle, discusses the implications of a recent study into access to financial services for SME online merchants, and how financial institutions can step in to help fill the gap.

“As an innovative financial infrastructure provider that aims to help Banks, FinTechs and Payments businesses improve financial inclusion for smaller businesses, we build our solutions from the ground up. Through detailed market research, we have identified the gaps in the market which our solutions can then address. Consequently, we carry out regular studies to uncover pain points and gaps we can help FinTechs and Payments businesses fill.

“In March 2020, we carried out a Europe-wide survey involving more than 1,500 SME online merchants. We found that nearly two thirds (64.6%) have needed extra finance in the past two years. And that’s excluding borrowing due to the COVID-19 crisis. Nearly a quarter (23%) needed the additional funding to cover payroll, and a further 26.5% to cover regular business costs.

“Although obtaining extra funding is a fact of life for many businesses, our research highlighted the serious gap in how easily and quickly funding can be obtained. This gap will have an even greater impact in the current climate as well as in the coming months and years of post-COVID recovery.

“A quarter (26.4%) of respondents felt that without access to new cash they would be forced to let employees go; almost as many (24.4%) believe their business would ultimately fail if they were unable to access new finance. Yet the same number of businesses had to wait between three and four weeks to receive the vital cash they needed to cover essential costs.

“Businesses of all sizes are currently facing a whole new set of pressures, but the strain is felt most keenly by smaller businesses. The Banking Circle white paper, ‘Mind the Gap: How payments providers can fill a banking gap for online merchants’, highlights the continued issue of financial exclusion for SMEs – and the opportunities for FinTechs and Payments businesses. These organisations are already connected to online merchants and are perfectly placed to play a crucial role in providing wider banking services, as well as access to funding.

Services are not fit for purpose
Our study found that online merchants access a wide range of services from their current banking partners. Around half use short-term loans, overdrafts, finance agreements for specific purposes, and settlement accounts for cross border payments. One in three use foreign exchange (FX) services.

“But crucially just 15% of the SMEs surveyed have not experienced problems when trying to arrange cross border payments through their banking partners. UK and German banks seem to be the most successful providers, with 21.5% and 18% of merchants based there, respectively, stating they haven’t experienced issues. But that’s still a small proportion of all SMEs wanting to trade internationally. And at the other end of the scale, less than one in ten (9.9%) French firms have experienced problem-free cross border payments.

“While there are a wide range of issues at play, the most influential difficulties are relatively consistent across the regions. Just over a third of all firms found high fees an issue – the most problematic area for all regions except the Nordics which struggled more with slow bank responses. And poor FX rates provided challenges for around one in three of all online merchants, although they were less of an issue in the UK compared with the other regions.

“Interestingly – and particularly in light of the acceleration of digital services in response to COVID-19 – a poor digital experience hampered a quarter of respondents. Poor customer service affected a similar proportion.

Barriers to banking
“The opportunity is clearly there for FinTechs and Payments businesses already supporting the online merchant space. They can deliver a genuine added value by providing their merchant customers with banking services, including access to funding. And in the current climate that support is going to be more valuable than ever. Indeed, for payments providers that demonstrate a real understanding of SME needs there could be a significant long-term gain.

The full white paper, ‘Mind the Gap: How payments providers can fill a banking gap for online merchants’, is available to download for FREE


  • Editorial Director of the The Fintech Times

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