Banks Turn to Real-Time Payments to Win Small Businesses

Small- to medium-sized businesses (SMBs) have spent decades navigating a banking system that never quite fit their needs, placed between consumer and commercial segments and rarely the focal point of either.

Wendy Cai-Lee, CEO of Piermont Bank, described that dynamic in direct terms.

“Every couple of years, they get moved from consumer bank to middle market and then back to the consumer bank,” she told PYMNTS in an interview, adding that the segment has remained “very difficult for the banks to serve them well, but also profitably.”

The consequence, she argued, is that SMBs have not been the starting point for product design. “Nothing is truly designed for them,” she said.

Shuttled Between Segments

The tension begins with how SMBs behave. Their operations resemble commercial enterprises, yet their decision-making often reflects founder-led instincts. Cai-Lee noted that this dual nature complicates underwriting, servicing and product alignment.

Banks, faced with similar operational effort for loans of vastly different sizes, have tended to allocate resources toward larger clients. After all, “it’s the same amount of work to do a $20 million loan as a $2 million loan,” she said.

That arithmetic has reinforced a pattern in which SMBs are treated as a secondary priority. The segment represents a large share of economic activity, yet the economics of serving it have not kept pace with its importance.

What Operators Now Expect

Against that backdrop, expectations have narrowed rather than expanded. Cai-Lee said SMBs are not seeking sophisticated treasury tools or cross-border hedging capabilities. They want execution that is reliable and immediate.

“They want to get paid, they want to pay their vendors … and they want to receive their payments” quickly, she said.

This has placed technology, and increasingly data, at the center of how banks can respond. Cai-Lee pointed to the importance of real-time visibility into cash flow and liquidity, along with faster onboarding and integration.

At the same time, the industry is beginning to examine how artificial intelligence (AI) can be applied beyond back-office functions. Cai-Lee cautioned that the readiness of data remains a constraint. “Getting data clean and getting data robust … that’s the hard part about using AI,” she told PYMNTS.

Her framing of AI’s role is less about cost reduction than operational discipline. Banking’s risks lie in inconsistency, she said, adding that the objective is to “use AI to reduce inconsistency.”

API Architecture and Control

The distinction between how banks implement application programming interfacs (APIs) has become more consequential. Cai-Lee drew a contrast between institutions that are API-first and those that layer APIs over legacy systems.

In her description, an API-first model embeds connectivity into the core ledger, while layered approaches act as an overlay. The difference, she said, is most evident in speed and flexibility.

This architecture also introduces governance considerations. Cai-Lee emphasized that banks must maintain control over API access, cybersecurity and third-party relationships.

Payments Become a Cost Question

The economics of payments are shifting in ways that could reshape competitive dynamics. Cai-Lee pointed to the declining cost of moving money, noting that transactions are approaching “pennies on the dollar.”

That shift has implications beyond pricing. If speed and cost converge toward a baseline, differentiation may move away from interface design and toward infrastructure, risk management and data.

For SMBs, the change is more direct. Lower costs and faster settlement alter working capital cycles and reduce friction in daily operations.

Piermont’s Focus and Real-Time Rails

Within that context, Piermont has concentrated its investments on payments and real-time infrastructure. Cai-Lee described a deliberate approach to prioritizing depth over breadth, particularly for SMB clients.

“We are really putting in a lot more investment into payments,” she said, emphasizing speed and cost efficiency as primary considerations.

The bank’s roadmap includes real-time payment rails such as the FedNow® Service and the RTP® Network, along with embedded lending models that align credit structures with business volatility. Cai-Lee also pointed to the expansion of the leadership team as a reflection of those priorities, particularly in payments and credit.

Embedded finance, in her view, is moving beyond FinTech partnerships toward broader integration within enterprise platforms. Embedded banking needs to be embedded into vertical enterprise, she said, referencing companies with large SMB customer bases.

Charters and Regulatory Direction

Cai-Lee’s experience advising on bank charters informs her view that regulation is evolving, though not yet fully aligned with the current environment.

She suggested that oversight should shift from entity-based thresholds toward activity- and risk-based frameworks. “They really should regulate banks … based on the risk profile and the activities,” she said.

Such a shift would better reflect the growing overlap between banks, FinTechs and embedded finance platforms, where traditional size-based distinctions are less informative.

Investment Priorities and Execution

The operational challenge, Cai-Lee said, is not simply adopting new tools but determining how and when to deploy them. Decisions around building versus licensing technology, integrating partners and maintaining governance structures all affect speed to market.

Banks that can align these decisions with SMB needs may find a clearer path to serving a segment that has long been underserved.

In Cai-Lee’s view, the path forward returns to fundamentals. “It’s not that complicated in terms of what they’re looking for,” she said of business banking clients. “But they want it done right.”