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IFX Payments report: SMEs in the UK plan to increase overseas spending but face debanking risk

Wednesday 5 June 2024 15:05 CET | News

A new report by IFX Payments has found that four in five UK small businesses are looking to increase their international payments in the coming year but may risk being debanked. 

 

According to the information in the press release, the Moving Money report, based on interviews with finance directors across the country, explores the needs and experiences of SMEs in Britain with cross-border payments and what is both driving and holding back positive change.

Reportedly, four out of five businesses (78%) surveyed said they expected to make more international payments in the next 12 months, whether through increased importing, exporting or paying the salaries of overseas employees. This positive outlook is applied across global trading partners. 

A new report by IFX Payments has found that four in five UK small businesses are looking to increase their international payments in the coming year but may risk being debanked.

Europe was the most popular region for expansion, with two-thirds (64%) of SMEs expecting growth there despite new trade and financial services barriers in the wake of Brexit. 

However, the report shows that three-quarters of small firms (76%) said they intended to do more hedging against currency risk, recognising the significant effect recent geopolitical events, wars and upcoming elections have had on currency markets. 

SME debanking and financial hurdles 

The Moving Money Report explores how rules introduced to separate banks’ retail and investment activities are creating more problems for SMEs, including the risk of debanking. According to the report, most small firms have been ring-fenced into the retail arms of banks, meaning their deposits cannot be used for investments. This makes it harder for banks to monetise these accounts, hence, the service provided to business customers is diluted.  

As per the report, in 2023, major banks closed more than 140,000 business accounts, accounting for over 1 in 40 (2.7%) of the SME accounts held by the UK's eight largest lenders. Reasons for these closures range from concerns over financial crime and fraud to customers’ inability to provide requested information, reflecting the banks’ risk assessment practices. However, the transparency in these decisions has raised concerns about the fairness and consistency of their actions. 

A debanking report published by the All-Party Parliamentary Group on Business Banking said that banks made little or no profit serving the bulk of SMEs. It suggested that with banks’ additional compliance costs involved in servicing some businesses the obvious commercial decision is to avoid the customer. With additional complexities involved in international trade, such as taxation and licensing, small businesses seeking to expand may be taking significant risks. 

The Moving Money report found that 70% of UK SMEs used banks for their foreign exchange, despite often incurring higher costs through fees than specialist fintech providers. Speed of transaction management was the biggest priority when arranging international payments, highlighted by over a third of SMEs (37%) surveyed. This was followed by cost-effectiveness (33%), suggesting that many firms are not shopping around for their FX. 

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Keywords: report, unbanked, SMEs, banking, financial services
Categories: Payments & Commerce
Companies: IFX Payments
Countries: United Kingdom
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Payments & Commerce

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IFX Payments

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