SMEs in the U.K. have a lot to think about these days. The volume is getting turned up even louder among small businesses fed up with their corporate buyers’ long payment terms. Media reports continue to speculate about the chances that the so-called Brexit might actually happen, which would have major implications for businesses in the U.K.
And on top of all of this, small businesses are not too pleased with the payment services they’re getting from their banks.
The latest research comes courtesy of cross-border FinTech player World First. The company released statistics today (Feb. 17) that found that more than half of SMEs using a bank agree that their bank does not fully understand their cross-border payments and foreign exchange needs.
A majority of SMEs surveyed also noted that bank fees associated with these services are unclear. About one-third believe the banks do not have the business’ best interest in mind when managing FX needs, too.
To understand the broader implications of these findings within the context of market conditions, PYMNTS spoke with World First CEO Jonathan Quin, who explained that these are issues weighing heavily on the minds of small business owners, though not necessarily in the way one might expect.
“There is regionalization of supply and globalization of demand,” Quin said, adding that a combination of factors has led to an increase in demand for more robust cross-border payment solutions.
Government initiatives, the chance to broaden one’s customer base, more sophisticated logistics and, of course, the Internet are all promoting globalization of SMEs’ B2B trade. But small business clients of World First have also become increasingly less weary of moving across borders.
“There has also been a lessening in fear,” Quin said. “Some of the businesses we spoke to said they were really worried about fraud in selling internationally, but if you look at the fraud rates, they’re pretty low and far outweighed by the benefit of entering a massive new marketplace.”
But as World First’s latest research shows, traditional banks are far from meeting the new requirements of the modern, globally connected small business. According to Quin, banks today are “self-serving;” it may not always be in their best interest to invest time and resources into improving banking services for their small business customers, which are generally considered high-risk, low-reward clients.
“We all use bank platforms and have not seen improvement,” the CEO said. “We still feel it’s a bit archaic and hasn’t really moved with the times.”
When a small business goes to its bank for foreign exchange services, Quin added, the businesses are generally met with a customer relationship manager of some kind, an employee without specialized knowledge of this segment. The services SMEs are provided are too straightforward, rigid and reactive.
“The customers we’re dealing with came to us because they’re not getting help from the bank,” he said. “We’re trying to be more proactive.” That involves taking the initiative to educate SMEs on moving FX rates or advising them to watch certain currencies.
On top of this challenge for adequate cross-border payments solutions, SMEs are also faced with the pressures of today’s political climate in the U.K.
For instance, late payments are squeezing small suppliers, a trend Quin said he considered “disgraceful.”
But while some analysts may feel that late payments might deter SMEs from taking the risk of working with unfamiliar, overseas buyers, the opposite, in fact, is true.
“If anything,” Quin said, “they look for other customers to sell to; 87 percent of businesses see international expansion as a way to grow. This is a way to access new customers and new suppliers.”
When it comes to the possibility that the U.K. exits the European Union, there are significant implications for this as well.
On Tuesday (Feb. 16), reports emerged that one-third of companies in the nation would relocate outside the U.K. should a Brexit actually occur. Quin suggested that the media frenzy around this topic could be overblown — a Brexit is far from a done deal.
But the uncertainty around this situation is what’s really placing pressure on SMEs, especially B2B exporters and importers.
“I think it’s the impact on the economy, and the impact on making it harder to trade globally, that they’re worried about,” he said.
All of these factors pool into an economy where, despite recovery following the recession, political and financial factors are increasing demand for international business and placing stress on SMEs, as they can no longer look to their banks to ease some of these concerns.
And regardless of unique political goings-on, Quin noted that other markets where World First operates, like the U.S. and Australia, are seeing this same increasing demand for cross-border payments capabilities from SMEs and are seeing this same failure among traditional banks to provide them.
It might be no surprise, then, that World First also found in its latest research that 65 percent of businesses surveyed said they would switch to a new financial services provider if there were a better alternative. It’s a sentiment helping alternative FinTech players like World First secure some deep roots in markets like the U.K.
But that doesn’t mean banks will be out of the picture. In fact, said Quin, in the last few months, two major banks have approached World First about a collaboration for the company to provide cross-border payments solutions that the banks can extend to their own clients — something Quin said would have been “unthinkable” only a few years ago.
This type of collaboration is likely to continue with banks realizing that there are other players that can fill market gaps more adequately than they can. FIs will probably keep a close guard of their underlying payments infrastructure and relationships, but there is a place for nonbank players to step into the ecosystem, Quin added, able to do things traditional banks simply can’t.
“Even though they have got the resources, they have legacy systems. They can’t be agile, they can’t change, they can’t get these projects through,” Quin said. “I would be surprised if the banks massively improved their service; they’re accepting that they’re leaving some of its business to companies like us."