Why do banks fail to meet SMEs’ cross-border payments demands

By Puja Sharma

A new report from FX and payments provider, Neo, has found that SMEs still rely heavily on traditional banks and struggle with the cost and speed of cross-border payments as a result. The report entitled ‘Growing pains: the escalating cross-border payment challenges for SMEs’, highlights that traditional banking partners are failing to meet SMEs’ cross-border payments needs.

Nearly four-fifths (78%) of SMEs rely on traditional banks for cross-border payments. Their biggest pain point was unfair pricing which over half of SMEs (55%) stated they struggle with. This was followed by speed of execution (45%) and reporting transactions (42%). For the majority of SMEs (72%), it takes 2-5 days for funds to appear on their suppliers’ bank statements with the average being 2.81 days.

When working with traditional corporate banks, opening an international bank account is a difficult, long and painful process – and the subsequent transactions can take days. As SMEs continue to expand and do business in different countries, many end up having different accounts for each country or currency, which adds complexity. If a business needs to onboard a supplier in a different market, it can take weeks to get the infrastructure in place – time and money which SMEs simply can’t afford to lose out on.

It revealed a similar theme when it comes to managing foreign exchange (FX). Over four-fifths (83%), use traditional banking to manage FX and the three main point points were again unfair pricing (48%), speed of execution (45%) and reporting transactions (34%).

The research also highlighted that SMEs are exploring new alternatives which help tackle these issues. The vast majority (92%) stated they have had conversations about virtual account solutions, while 65% are utilising non-banking payment solutions such as payment service providers (PSPs), money services businesses (MSB) and electronic money institutions (EMI).

Laurent Descout, CEO and Co-Founder of Neo, said, “While cross-border payments have improved for consumers, standards in the B2B market have largely remained the same. Payments are still slow, fees are hidden and tracking is largely non-existent for many SMEs

“While most CFOs and treasurers continue with traditional banking partners, the research shows that they are looking into other options such as non-banking payment solutions and virtual accounts. Traditional banks simply can’t compete with the faster, easier, and more secure service that fintechs provide, and many SMEs are beginning to rethink their traditional banking partnerships as a result.

“The research has highlighted that SMEs are also looking for solutions to tackle increasingly volatile currency markets. It’s really positive to see that the vast majority of SMEs have FX risk management policies in place, it’s vital they continue to monitor its effectiveness as currency markets move very quickly.”

Key findings:

 Diversifying bank partners – 75% of SMEs are considering diversifying their bank pool in the coming months following the banking crisis, while 6% have already done so.

Fund safeguarding measures – 50% of SMEs said they always enquire into the name and/or credit rating of the safeguarding partner, while 47% said they sometimes enquire.

Importance of FX – 72% of SMEs said that FX had been a critical matter so far this year, while 25% said it was a relatively important matter.

 Dealing with currency volatility – 95% of SMEs are taking the threat of negative currency impacts on their bottom lines seriously and have an FX risk management policy, while 84% have an in-house FX expert.

Other cross-border payment pain points – SMEs also struggle with a lack of automation (29%), reconciliation of flows for receivers (27%) and a lack of support from experts (25%).