Banks Risk Losing 89% Of SME Business To Fintech Competitors
Consumers are most interested in new payment methods like instant payments, e-money, mobile and digital wallets, account-to-account, and QR codes. However, the looming threat of recession, rising inflation rates, and ongoing geopolitical issues are creating a whole new set of problems.
Even with these global headwinds, the Capgemini Research Institute’s World Payments Report 2022, which came out today, found that new payment methods are still expected to grow from making up about 17% of all non-cash transactions in 2021 to making up about 24% of all non-cash transactions in 2026. B2C payments have done well, but the B2B value chain has been overlooked too often.
Despite recent market volatility that has never been seen before, the payments industry has been able to stay strong. This has been helped by the rise of new digital payment methods for consumers. But many banks don’t offer the same help to small and medium-sized businesses.
Even though the post-pandemic recovery looks good, the report says that SMBs are still having trouble with cash flow and conversion cycles, which is stopping many of them from moving on to the next stage of growth. This has made more people want payment service providers to step up, change their priorities, and make sure they have the right tools to help small and medium-sized businesses find new market opportunities.
“Small and medium-sized businesses are the backbone of global economic growth. They are responsible for half of the world’s gross domestic product (GDP) and jobs. “Yet, they are some of the most affected by the recent market volatility,” said Jeroen Holscher, Global Head of the Payments and Cards segment at Capgemini. “Banks and payment service providers need to change their priorities to take advantage of this untapped value with new and exciting payment services.”
Put together the right pieces to improve SMB journeys
The SMB market segment is now worth more than USD850 billion around the world, according to the report. However, the legacy banking industry still tends to ignore SMBs in favour of larger corporate accounts and the bigger retail market.
So, SMBs often have problems with cash flow, cybersecurity risks, not having enough cash on hand, and inefficient operations. This makes them even less happy with their current payment service providers. In fact, 89% of SMBs surveyed feel that their main banks don’t meet their needs and are thinking about switching to a more accommodating PayTech challenger.
Small and medium-sized businesses could follow the trend that is already happening in consumer markets if they switched to a digital payment provider. For example, the report found that B2B transactions that don’t involve cash are expected to grow at a CAGR of about 10% from 2021 to 2026.
To win back the loyalty of small and medium-sized businesses (SMBs), banks will need to increase the value of their platforms. This can only be done by fixing the legacy systems that are holding back growth.
The report found that more than a quarter of banks have trouble with monolithic and inflexible infrastructures, and 75% of the executives put the costs of keeping current systems running ahead of coming up with new value propositions. This makes it hard for SMBs to get the investments they need in innovation and flexibility.
Instead, payment companies should focus on composability, which lets them choose and put together building blocks in different ways to meet customer needs. By doing this, companies can set up their services to best meet the needs of small and medium-sized businesses (SMBs). This is made possible by harmonised data, which enables payment companies to build B2B marketplaces for SMBs.
Distributed Ledger Technology solutions could open up new ways to pay
Distributed Ledger Technology (DLT) is one of the many new technologies that banks are using to stay competitive. It is becoming an important tool for thriving in the age of seamless value exchange. Many banks and payment service providers (PSPs) agree that it has the potential to change the industry, but adoption will be slow because limited resources will make it hard to invest. As the market changes and PSPs start to look into this new technology, the report shows different ways forward that could be taken.
64% of small and medium-sized businesses think that distributed ledger technology (DLT) could become a useful addition to existing payment networks as B2B cross-border transactions on the blockchain continue to grow and cryptocurrencies gain popularity. So, DLT can be thought of as part of a foundation strategy with multiple rails to better support these global and regional payment networks.
In the same way, the fast growth of more crypto assets that aren’t regulated has led many banks to look into the opportunities that come from central bank digital currency (CBDC). Lastly, the report shows that DLT use cases are already being scaled up for the next wave of growth opportunities by those who want to be leaders in their industries.
