How Overlay Services Can Break SMB Financial Data Out Of Silos

The rise of the cloud and Software-as-a-Service (SaaS) has transformed the way businesses operate, digitizing valuable data with the potential for deeper, more insightful analytics and smarter decision-making. However, this shift comes with a major drawback.

Just as consumers are struggling with app fatigue, businesses of all sizes can face friction in managing the multitude of platforms being deployed in their back offices. One of the largest challenges in this regard is the inability for these enterprise platforms to connect with one another. Without data integration, information stuck in silos lacks the context of what’s going on around the rest of the enterprise.

Take, for instance, the vast array of FinTech solutions that small businesses (SMBs) have at their fingertips. While online banking portals and cloud-based payroll, accounting and cash-forecasting solutions all have their benefits, a lack of data integration means major challenges in reconciliation and data analytics.

CreDec CEO Alex Meynell recently told PYMNTS that small businesses may not necessarily be struggling with enterprise fatigue — because many are only operating two or three financial platforms. Yet, even so, the data integration challenge can be significant, especially in SMBs’ payment processes.

“There isn’t the bandwidth or the capacity, or business complexity, in most small businesses to have such a plethora of applications that generate payments activity,” he said. “But nonetheless, the rule applies that single source is as elusive for small businesses as it is for big businesses.”

Linking Payments With Accounting

In the U.K., in which CreDec is based, Open Banking regulations and the adoption of application programming interfaces (APIs) have begun to tackle this point of friction for companies of all sizes. Yet, small businesses rarely have the capacity, resources and skills to deploy API connectivity themselves.

CreDec is addressing this problem with the recent launch of its Virtual Account solution, an overlay service that connects a small business’ bank account directly into a third-party app (CreDec’s first integration is with Xero). This allows a small business to initiate a transaction from directly within that accounting platform, rather than having to toggle between accounting and banking portals.

In addition to addressing the cost barrier to API integrations, Meynell said this data integration strategy tackles a “fundamental problem” of B2B payment solutions.

“A significant number of payment service providers require customers to hold float in a new provider’s bank account,” he explained. “We think that is an inelegant solution for businesses because it is both burdensome financially and adds another layer of complexity and cost to manage funds in two different accounts. … The convenience of having a more proximate, automated payments solution from another provider is undone by the inconvenience of having to manage their credit balances across two accounts.”

Finally, he added, this kind of integration promotes an elevated level of collaboration between accountants and their small business customers that cannot be achieved when payments data remains siloed from accounting portals.

Readying For The Future Of Payments

The rise of SaaS apps is part of the ongoing evolution to the way businesses operate and manage finances, and, as Meynell noted, the pace of change continues to accelerate. While overlay services can achieve a seamless integration between two once-separate financial processes, like payments and accounting, they can also support small businesses’ need to prepare for future innovations.

CreDec exemplifies this opportunity with its Virtual Account service, which connects small businesses to the U.K.’s Faster Payments network. Meynell said faster and real-time payments show significant promise for small businesses, particularly in areas like payroll and gig worker payouts.

“It’s surprising, in an economy like the U.K., how many employers are still running weekly payrolls,” he said, pointing to industries with large hourly workforces as areas with the most friction. “Those employers have to turn around timesheets fairly quickly, and Faster Payments will be the optimal payment rail for settling those payroll credits.”

He added that, for small businesses in particular, ensuring employees are paid quickly, on time and accurately — every time — is essential to promoting worker loyalty and talent retention.

However, though the adoption of Faster Payments shows promise in a range of small business use cases — from payroll to accounts payable — as payments accelerate and digitize, SMBs will continue to face new challenges in how they capture transaction data, reconcile payments and analyze financial information.

Many of the drivers behind changes to the ways small businesses manage finances stem from regulatory initiatives, like Open Banking and the launch of the Faster Payments service. Meynell said that regulations will continue to play a key role in guiding the evolution of small business payments and finance.

“I think you can never underestimate the importance of regulatory change. That is always a prospect for small businesses,” he said. “In terms of payments technology, certainly this is one area in which the U.K. comfortably leads globally. There is enormous payments infrastructure and technological change arriving in the U.K.”