B2B Payments

Small Firms Demand Higher Speed, Lower Costs In Global Payments

Small businesses (SMBs) are rarely early adopters of new financial technology (FinTech). However, with business owners and entrepreneurs often taking a page out of their personal lives as consumers, the eventual adoption of emerging solutions is an inevitable part of FinTech innovation.

It seems that’s the journey for cross-border payments, which are in the midst of a digital disruption as innovators focus on addressing a range of friction points, from sluggish speeds to high costs.

Only a few years ago, small businesses lagged in global payments technology uptake. A 2016 report from HSBC found that a “lack of international business experience and knowledge” held small business owners back from global expansion and, therefore, from the adoption of global payment solutions. A year later, Saxo Payments Banking Circle released another report, pointing to three main barriers to the adoption of cross-border payment services among small businesses: speed, FX rates and transaction fees.

“These are all issues emanating from the traditional correspondent banking infrastructure,” explained Banking Circle CEO Anders la Cour at the time.

Indeed, FinTech and alternative financial service providers have stepped in to try to combat those points of friction, wielding technologies like blockchain and IBAN solutions to find ways around the friction of correspondent banking. In response, traditional financial institutions (FIs) have recognized these pain points and worked to address them for SMB clients, either through collaborating with these FinTech firms, acquiring their technologies or investing in proprietary product development. In parallel, SMBs have overcome those barriers to global expansion, thus, increasing their demand for global payment solutions.

Last year, Canadian bank CIBC found that younger entrepreneurs are driving this shift: 72 percent of business owners aged 25 to 39, surveyed by the FI, said they export goods and services, and nearly half said they boosted their international growth efforts over the last five years.

Earlier this week, CIBC announced that it would be rolling out its Global Money Transfer platform for small business clients, a cross-border payments tool that had been available for consumer customers for several years. The launch for SMBs certainly reflects the game of catch-up that firms often play, following consumers’ payment and technology adoption habits. However, the bank’s initiative also addresses some of the largest pain points of cross-border payments for small businesses, most notably in its decision to not charge upfront transfer fees.

“Our small business clients are increasingly looking overseas to do business,” explained CIBC Senior Vice President of Business Banking Andrew Turnbull in a recent interview with PYMNTS, pointing to last year’s poll of young entrepreneurs’ global growth efforts. “We’re seeing the use of digital commerce — and the expansion across borders — happening much earlier in the business life cycle than it has historically.”

With a rising number of alternative global payment service providers in operation today, traditional large institutions like CIBC must focus on customer experience and satisfaction. Such was the prediction of SWIFT and McKinsey in a report published last November, which forecasted that FIs would evolve their global corporate payment offerings with a focus on customer experience, and on integration of their payment services into users’ existing back-office platforms.

Cutting transaction fees is certainly an effective way to satisfy customers, particularly in the wake of revelations of hidden and burdensome foreign transaction fees charged to small businesses. In the U.K., for example, 2016 research from Covercy found SMBs that send just 20 cross-border transactions a month at $13,000 each will pay more than $2,700 a month in fees. Researchers found that more than 69 percent of SMBs were paying “completely unnecessary” cross-border payment fees, boosting awareness of a lack of transparency that can sometimes plague small businesses and other customers of financial service providers.

However, it’s not just the costs of global transactions that have historically held small businesses back from adopting such services. Researchers have agreed that the speed with which money moves across borders has been less than impressive for the SMB customer segment.

Turnbull told PYMNTS that he doesn’t agree with the sentiment that faster payments don’t have a place in the corporate and small business payments space, particularly when moving money across borders.

“I think the speed of payment is incredibly important,” he said. “As a business owner, you want to minimize the amount of working capital you have tied up in the business to focus on productive assets.”

CIBC’s cross-border payments service for small businesses can, in many cases, land funds in the recipient’s account within a business day, a capability that Turnbull noted allows SMBs to use their capital strategically. Making a payment to a cross-border employee on the day they need to receive payroll, for example, or consistent payments made to a supplier or service provider overseas, are particularly valuable functionalities.

The service — which enables small business owners to make daily cross-border transfers of up to $15,000 CAD (about $11,130 USD) — is also accessible via mobile device. That is another important feature for small business owners that Turnbull said are often “on the go,” and looking to spend more time on strategic initiatives of their operations, rather than traveling to the office to initiate a payment.

In the current climate of FinTech disruption, big banks’ cross-border payment initiatives can be a strategic way to retain small business customers that are increasingly switching providers, research found. While Turnbull noted that CIBC sees value in collaboration with FinTech firms in the cross-border payments space and other financial service arenas, the brand trust attached to the name of a large, long-standing FI can also provide reassurance to customers as faster, global payment initiatives bring focus to the security of transactions.

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Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 edition of the FI Innovation Readiness Playbook examines how the innovation playing field is leveling as small FIs implement bolder strategies and larger banks adopt more measured approaches.

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