In Sluggish Payments, Who’s To Blame: FIs Or SMEs?

When ACI Worldwide released its latest research on small business banking in the U.K., it confirmed that small businesses are fed up with their banks when it comes to how long it takes for payments and transactions to actually complete.

One-third of SMEs surveyed by ACI and YouGov found that delayed payments and the time it takes for payments to actually land in their bank accounts is negatively affecting their ability to meet financial obligations in a timely manner.

When the results were published, ACI Worldwide Director of Solution Consulting and Immediate Payments Barry Kislingbury said the findings represent a “great opportunity for banks working with these businesses to demonstrate the value of their real-time payments offering.”

With SMEs frustrated with sloth-like banks, the research seems to confirm that financial institutions need to do more to meet the faster payments needs of their SME clients.

But, according to Kislingbury, there’s more to this research than meets the eye.

“If you go through the numbers, it does imply there’s a lot more business to be done for cash management to be done better,” he said in a recent interview with PYMNTS.

The culprit behind the lag time for a transaction to show up on a bank statement, he said, has to do with the array of payment tools that small businesses are using, each with their own journey within the banking system.

“The current situation depends on whether you make a payment via a particular type of instrument — using a check or cash. There are various ways that SMEs have to deal with money coming in and out,” Kislingbury explained. “It leads to a situation where they don’t really learn what their financial position is.”

He pointed to a window cleaner, for example. If the cleaner, who essentially operates as his own small business, receives payment in cash, that doesn’t mean he can actually use that cash to pay suppliers until he makes a trip to a physical bank branch.

Or, in the case of cards, retrieving cash from an ATM will show up instantaneously in bank records; in a B2B transaction, on the other hand, a transaction may not get settled for a few days.

“You’re using the same card and getting different results depending on which way the payment goes through the banking system,” Kislingbury said. “There is a very inconsistent way of handling money — cash, check, debit card, credit card or ATM — and it’s that inconsistency of how the money moves through the banking system that I think is the problem.”

The obvious argument is for financial institutions to improve their faster payments systems.

But what if the research can be looked at from a different angle? What if, instead, the argument can be made for SMEs to be more selective with the way they send and receive payments in favor of methods that are faster?

After all, if an SME is frustrated at the speed at which a paper check clears, then why not stop using checks?

“It’s a good question,” admitted the executive. “You could turn around and say, ‘OK, don’t accept cash. Don’t use a check.’”

And, in fact, there is an increasing number of SMEs in the U.K. that are beginning to do this; businesses that offer their corporate or consumer customers an incentive to pay in a certain way — for example, an early payment discount for an invoice settled electronically — can help.

But, as is the case in business, the customer is almost always right. That means the pressure is on the banks to provide faster payment services all-around.

Kislingbury pointed to earlier research by ACI that concluded U.K. SMEs are willing to ditch their banks in favor of another financial institution that provides higher-quality services.

“Some of the smaller [businesses] could possibly limit the way they do things, but I think it’s a bit hard to blame them,” he said. “I think what it comes down to more is what facilitates the banking environment.”

The executive emphasized another way readers should look at the ACI report in a different light.

The smaller data points, he said, could have some of the biggest implications for banks.

“One of the things that stood out for me was that 10 percent note access to finance is limited,” hampering SMEs’ ability to purchase necessities like equipment, he said. “Ten percent isn’t a very big number,” he continued, “but if banks could turn that around and increase their loans to businesses by 10 percent and increase revenue by something like 5 percent, that’s actually quite a big thing, even though it doesn’t sound like a big number.”

It’s these small, seemingly less significant data points that emerge from research like ACI’s that need to be paid close attention to, Kislingbury said.

So, while industry players may conclude from the report that the burden is on the banks to improve the speed of payments for their SME customers, Kislingbury pointed to the financial possibilities in this responsibility.

He added that the banks would likely be pleasantly surprised at the rate at which customers would switch from their old banks to another that increases their SME lending or offers faster payments solutions.

After all, said Kislingbury, the report is really about transparency.

“If you send someone a check or ACH payment, it sort of disappears into a black hole for a few days,” the executive noted. “You’re not quite sure what’s going on. It’s all about control and visibility.”

The first step to SMEs landing better control of their finances is widespread adoption of electronic payments, and that can be fueled from the banks. Only then can financial institutions achieve near-instant payments for their customers. It will be worth the time and effort, Kislingbury argued.

“There are a lot of surveys like this,” he said. “And if banks really think about what the problems are that their customers are facing, you don’t necessarily have to fix the big stuff to make more revenue somewhere.”