B2B Payments

A Wakeup Call For SME-Serving Banks


Listen up, lenders: Research on small businesses' banking habits can offer valuable insight into the SME customer base. New data on the struggles facing small business borrowers — from frustration surrounding the rejection of a bank loan to unexpected, sky-high APRs linked to alternative financing — means banks have a long way to go to fill in the gaps for entrepreneurs when it comes to their cash management, payments and expansion needs.


94% APRs are tacked onto alternative SME loans, concluded nonprofit company Opportunity Fund. The microfinance provider surveyed 104 businesses in California and found sky-high interest rates for small businesses turning to alternative marketplace lenders for financing. According to researchers, the 104 companies surveyed held a collective 150 loans. More than a quarter held loans from multiple lenders, according to reports. On average, these businesses paid 178 percent of their monthly income on loan repayments, leading researchers to declare that alternative lenders are enacting "predatory" practices on small business borrowers.

56% of SMEs expect to pay bills via online banking more frequently this year, a sign that small businesses' digital banking and payments needs are evolving, according to Fiserv research. In an interview with PYMNTS, Fiserv VP of Strategic Marketing, Digital Channels and Electronic Payments Steve Shaw said that this research suggests a significant opportunity for banks to provide value-added services to their small business clients. For instance, 24 percent of SMEs surveyed that want a cash management tool said they need one that offers predictive analysis — not simply "cash in, cash out" solutions, as Fiserv explained. According to Shaw, unless banks start offering these robust, SME-specific banking and payment tools, small businesses will leave for alternative third-party financial services providers.

36% of self-employed entrepreneurs turn to payday loans to cover late payments, revealed new analysis from U.K. FinTech startup Ormsby Street. Researchers noted that the data could signal an impending challenge for the freelance segment, as nearly half (46 percent) reported financial struggles in their everyday lives. On average, freelancers in the U.K. are owed more than $7,800 in late payments. In a statement, Ormsby Street Managing Director Martin Campbell said the data reveals an all-too-common issue for freelancers. "Every freelancer knows that late invoice payment is one of the biggest frustrations, impacting cash flow and causing much stress," the executive said. Only 19 percent of surveyed freelancers said their invoices are settled on time.

28% of SMEs aren't using bank resources to protect against late payments, found Intrum Justitia in its European Payment Report 2016. The research calls into question the effectiveness of European efforts to stimulate economic growth by keeping interest rates low and encouraging prompt payments to smaller suppliers. Nearly half (45 percent) of SMEs said they have simply accepted the fact that they are faced with extended payment terms. While 28 percent of businesses said they are familiar with the EU's Late Payment Directive, just one-fifth agreed that it has made a positive impact. With less than a third using solutions offered by their banks, like bank guarantees or credit insurance, to safeguard against delayed payments, it could be said that banks may need to do more to support their SME customers.

25.2% of SMEs increased their payroll commitments last month, found the CBIZ Small Business Employment Index. The figure led analysts to conclude that, while employment figures were lower than expected, small businesses are continuing their trend of hiring practices. May's barometer reading marked the fourth month in a row with positive SME hiring trends. Slightly more than half (50.3 percent) of SMEs made no changes to their staff levels. The most significant employment losses occurred within the financial services, insurance and health care sectors, researchers found.

16% of SMEs in the U.K. are seeking alternative financing after being rejected by a traditional financial institution, said Amicus. Researchers found that the percentage of small businesses turning to alternative lenders has increased by 5 percent compared to the 2015 survey's figures. The majority (51 percent) said increased flexibility makes alternative lenders more attractive than banks, also up from 45 percent in 2015. Small businesses in the U.K. are reportedly expecting demand for alternative lending services to spike by 28 percent over the next two years. Whether or not research from Opportunity Fund regarding U.S. alternative finance annual percentage rates will deter any increase in alt-finance has yet to be seen.

1.2% more corporations received bank financing this year compared to last, found the European Central Bank, which released new statistics on FIs' lending practices to companies across the eurozone. Lending levels increased in April, research found, while corporate financing by banks saw a year-on-year increase in April, too. The data suggests financial institutions are responding to interest rates that are kept suppressed by the ECB, a move that hopes to stimulate economic growth but which recently received skeptical reviews by the Intrum Justitia's European Payment Report 2016, calling into question the effectiveness of the ECB's efforts. Further, while corporate lending is on the rise across the eurozone, the data did not detail whether those increases also applied to SME borrowers.



Banks, corporates and even regulators now recognize the imperative to modernize — not just digitize —the infrastructures and workflows that move money and data between businesses domestically and cross-border. Together with Visa, PYMNTS invites you to a month-long series of livestreamed programs on these issues as they reshape B2B payments. Masters of modernization share insights and answer questions during a mix of intimate fireside chats and vibrant virtual roundtables.

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