Banks risk losing 89% of SME business to fintech challengers
New payment methods (instant payments, e-money, mobile and digital wallets, account-to-account, QR codes) are leading consumers, but the looming threat of recession and rising inflation rates combined with persistent geopolitical issues pose a whole new set of challenges.
Despite these global headwinds, the Capgemini Research Institute’s World Payments Report 2022, published today, found that new payment methods are still expected to grow from around 17% of total non-cash transactions in 2021 to around 24% by 2026. while B2C payments has flourished, the B2B value chain has too often been neglected.
The payments industry has remained resilient through recent unprecedented market volatility, accelerated by the adoption of innovative new digital payment methods for consumers. However, many banks fail to provide the same support to SMEs.
According to the report, despite promising post-pandemic recovery levels, SMEs continue to struggle with cash flow issues and conversion cycles, inhibiting the next phase of growth for many. This has led to increasing demands on payment service providers to step up, adjust their priorities and put together the right tools to help SMEs explore new market opportunities.
“SMEs are the backbone of global economic growth, contributing to half of global GDP and global employment. And yet they are some of the most affected by the recent market volatility,” says Jeroen Hölscher, Global Head of Payments and Cards segment in Capgemini. “Banks and payment service providers must adjust their priorities to capture this untapped value through innovative and experiential payment services.”
Assemble the right building blocks to improve SMB travel
While the SMB market segment is now worth over US$850 billion globally, the report cites, SMBs are still often overlooked in favor of larger corporate accounts and the larger retail market by the legacy banking industry.
As a result, SMEs often struggle with cash flow issues, cyber security risks, poor liquidity and operational inefficiencies that fuel the existing dissatisfaction with existing payment service providers. In fact, 89% of SMEs surveyed feel underserved by their primary banks and are considering a shift to a more accommodating alternative PayTech challenger.
A shift towards a digital payment provider will allow SMEs to reflect the trend already underway in consumer markets. For example, the report found that worldwide non-cash B2B transactions are expected to grow at a CAGR of ~10% during 2021-2026.
To win back SMB loyalty, banks will need to reinforce the platform value that can only be unlocked by tackling restrictive legacy systems that are currently stifling growth.
The report found that more than a quarter of banks struggle with monolithic and inflexible infrastructures, with 75% of managers prioritizing cost over keeping current systems running over innovative new value propositions – a clear barrier to needed investment in innovation and flexibility as SMEs wishes.
Instead, payment firms should embrace composition that allows them to select and assemble building blocks in various combinations to satisfy customer requirements. By doing so, firms can configure their offerings to best align with SMB needs, driven by harmonized data, to deliver a unified value proposition by enabling payments firms to build B2B marketplaces for SMBs.
Explore new payment options through Distributed Ledger Technology[1] solutions
Within the wealth of innovative technologies being adopted by banks to stay in the game, Distributed Ledger Technology (DLT) emerges as a key advantage to thrive in the age of seamless value exchange. While many banks and payment service providers (PSPs) agree on its potential to transform the industry, adoption will remain cautiously stable as stretched resources continue to limit investment opportunities. As the market develops and PSPs begin to explore this new technology, the report outlines several potential routes forward.
64% of SMEs believe that DLT can emerge as a viable complementary alternative to existing payment networks, as B2B cross-border transactions on the blockchain continue to grow alongside cryptocurrency traction. As a result, DLT can be considered part of a multi-rail foundation strategy to better support these global and regional payment networks.
Similarly, the rapid rise of more unregulated crypto-assets has led many banks to explore the possibilities of central bank digital currency (CBDC). Finally, the report highlights that aspiring industry leaders are already scaling DLT use cases for the next wave of growth opportunities.
Report methodology
The World Payments Report 2022 draws on insights from two primary sources – the Global Small and Medium Business Survey 2022, which included 150 respondents, and the Global Banking and Payments Executive Surveys and Interviews 2022, which included 125 senior executives at leading banks. These primary research sources cover insights from 17 markets: Australia, Canada, France, Germany, Hong Kong, India, Italy, Japan, Malaysia, Netherlands, Singapore, Spain, Sweden, Switzerland, UAE, UK and USA.
