For banks seeking to lure and keep small- to medium-sized business (SMB) clients, real-time payments can become big business.
If traditional financial institutions (FIs) lag in offering faster payments to those SMBs, they’ll lose out to competitors.
The March/April installment of the Real-Time Payments Tracker Series, “Small Businesses, Big Demand: The Case for SMB-Focused Real-Time Payments,” presented jointly by PYMNTS Intelligence and The Clearing House, found that SMBs have traditionally been overlooked for some key banking services. In the current environment, SMBs are in greater need of capital efficiencies than they have been in decades. Macroeconomic volatility is leading to cash flow pressures as small firms see a pullback in consumer spending and as supply chains must be reconfigured.
In February, TCH’s RTP® network notched its 1 billionth payment, a year and a half after hitting the 500 million transaction mark. Use of the network is growing, and given that the transaction limit was raised to $10 million from $1 million also in February, instant payment options are well suited for commercial settings. As for the temptation to vote with one’s feet, the report found that one-third of SMBs would switch FIs for real-time payments.
Banks should sit up and take notice. They have historically taken time to set up real-time payments capabilities for big business clients, as 8 in 10 FIs enable large enterprises to send and receive instant payments, per the report. Fewer than three-quarters of banks offer the same functionalities for their smaller clients.
The report revealed that 77% of SMBs said cash reserves are barely sufficient to meet their operational needs day in and day out and 3 in 4 of them experience late receivables. Most Main Street firms, then, could benefit from the certainty that money will be in their coffers when needed, instead of waiting for transactions to take days to settle or juggling the frictions inherent in depositing and managing paper checks.
According to the Federal Reserve, 80% of small firms face payment-related difficulties. Fees associated with payment processing are the top challenge, followed by customers who pay slowly, impacting 39% of SMBs.
Additionally, 20% of SMBs reported that payment processes consume too much time, and 18% said they experience delays in fund settlement or availability. Slow payments frequently affect businesses receiving payments via third parties, scheduled installments or post-delivery arrangements, underscoring SMBs’ need for improved, real-time payment solutions from their FIs.
The banks can solidify loyalty from SMBs through real-time payments offerings. In doing so, they can also boost their own revenues.
Most SMBs are willing to pay fees to enjoy the benefits of instant payments. The report found that 57% overall preferred fixed fees, while 54% favored percentage-based charges.
Even the most constrained companies would pay fees for the more efficient cash flows that result from real-time payments. The report revealed that 88% of the smallest SMBs — those with annual revenues of less than $100,000 — would be willing to pay a percentage fee to receive instant payments.
