How Banks Can Help Small Businesses Close Their Cash Flow Gaps

For businesses, cash flow is, was and always will be king when it comes to priorities.

Jump into a time machine, and that theme would be a constant when looking at the world’s biggest companies and their progress over time, Ingo Money CEO Drew Edwards told Karen Webster in a digital discussion.

Edwards said the first thing big companies did on their road to domination was to get control of accounts receivable — collapsing their supply chains and managing their inventories.

“In short, cash flow, cash flow, cash flow,” Edwards said.

He added that “with small businesses, it’s the same problem. If you’re a restaurant, and now all your waiters want to get paid every night with cash, and you have to pay upfront for food and liquor — COD. Yet all the money that’s coming in to pay for all of those things, [you] have to wait three or four days for.”

It’s what Edwards called a “classic gap” — and one that every small- to medium-sized business (SMB) in America is looking to solve. He said instant disbursements can help to close that insofar as they’re available to SMBs, but their penetration into the market remains limited and the pace of adoption doesn’t feel all that fast.

The Problem With Legacy Systems

If merchants need instant payments — and PYMNTS/Ingo Money’s recent Disbursement Satisfaction Index indicates they strongly do — why does progress seem to be going so slowly?

The simple answer is that legacy processes built from legacy systems that banks and corporates rely on mean that instant payments aren’t just a switch that can be flipped on overnight, Edwards said.

The change is happening and even picking up speed, but still hasn’t quite made it over the early adopter hump yet. However, Edwards said we’ll be in a whole new disbursement ballgame once it does.

“We’re not there yet at the moment, but that’s where this is all headed,” he said. “If you’re a business and you don’t offer instant access to somebody’s money, it’s going to be like a bank not offering bill pay. It will take people out of the game. Right now, every bank doesn’t offer it — we’re still with the early adopters. But as it pushes beyond that, it starts to become required, and then they’ll all do it.”

Why PayPal And Square Already Offer Instant Payments

Edwards said the path to instant disbursements is being pushed forward by players like PayPal. And more recently, Square simply flipped on instant disbursements as an option for that company’s SMB clients.

But Edwards said firms where instant payments have come on quickly and fairly seamlessly are digital-first establishments that had been paying their workers or vendors digitally from Day One.

“Square is the Uber of the merchant-acquiring experience, meaning that they control the whole ecosystem,” he said. “Compare that to a few Ingo clients who did the integrations with us to do same-day settlement. It hasn’t taken off yet because they don’t have a digital way to engage with their SMBs, such as an app where the SMB manages their payments, that their small businesses are engaging with every day.”

The old school relationship with those processors isn’t the digitally moderated engagement that Square, Uber or PayPal have built out. Edwards said it’s very much offline and often involves merchants hitting a button once a month for close-outs.

He said the digital-first companies’ advantages are often described in terms of superior technology, but the real power these firms have is the ability to engage and communicate with customers when it comes to offering new services and capabilities such as payments choice. Edwards said that’s a disconnect the rest of the industry needs to fix to make instant payments work.

The Perception Gap

PYMNTS’ and Ingo’s data have also shown that limited communications lead to another problem: differing perceptions of what payments options are even available to business customers.

Roughly 80 percent of payors that PYMNTS and Ingo surveyed said they’re offering choice to their payees, but only slightly more than 50 percent of payees perceive they have any meaningful choices when it comes to disbursements.

Edwards said that gap springs from a variety of misunderstandings. Often, a firm will have some project or pilot going with an instant payment method, such as push to card, and thus will accurately report that it has disbursement choices available. But the reality is that that’s not really broadly available to a company’s customer base.

Edwards said there’s also a tendency to misuse terms. For example, a business will believe it’s offering instant payments when it’s only offering electronic payments that aren’t really instant. Direct deposit puts funds in an employee’s account electronically and automatically on a specified pay date, but that’s very different from what an Uber driver experiences when the person is paid truly instantly at the push of a button.

“When a driver at Uber finishes a job, they’re looking at their app going, ‘How much did I make on that?’ And right there, Uber can say: ‘Hey, you want that right now for a small fee?’” Edwards said. “That’s what real instant payment choice looks like.”

How To Speed Up Adoption

The trouble is that banks and lots of enterprises are still stuck on the batch processes of yesteryear that required overnight shutdowns to close books, run processes and disburse funds.

But Edwards said that system just isn’t compatible with 24/7 real-time payments processing without some technology bridges in place. He said that eventually, all banks will move to where Ingo now is with KeyBank — finding ways to bridge the gap in asynchronous batch processes in much the same way they do with debit processing.

“We’ve had to create stand-in processes for some of America’s largest banks to satisfy their compliance, regulatory, etc., but all of them can have a 24/7 real-time instant payments choice platform,” Edwards said.

Offering Instant Payments Is Just The Beginning

That’s a process he expects will pick up speed in the not-too-distant future because SMBs hit hard by the pandemic don’t have the time to wait on getting paid. Edwards said they’re late to the game but ready to play — as evidenced by the rapid and avid adoption of Square and PayPal’s instant payments offerings.

And from there, the space has an opportunity to get really interesting. For example, merchants and banks could offer cash incentives to consumers to “choose” their payment type similar to card incentives today on the spend side of the equation.

“I think small businesses will pay for speed and for access to cash flow,” Edwards said. “But I think consumers ultimately will reap the benefits of yet another choice we get to make based upon issuer funded incentives. I think that’ll actually be something they are able to monetize because it’s part of the customer experience choice game.”


For other programs in the month-long series of conversations on innovating B2B Payments, please register here. To see all prior programming on-demand, please visit PYMNTS TV and the B2B channel.