COVID-19 has touched every area of our lives and changed almost everything in some way. To what extent businesses will be impacted in the long-term by the extended period of dramatically lower trade is one of the key questions, and one which the payments sector is in a strong place to provide clear support and solutions.
The changing dynamics of consumer and business behaviours as a result of the pandemic have accelerated the pace of innovation – and adoption – of online trading in a way that probably no one anticipated. But the reality is that it is a rapidly growing and evolving marketplace. And that means it is experiencing growing pains, with entrants facing multiple barriers to operate because established financial institutions have a fear of the unknown. Opening a bank account – fundamental for most enterprises – can feel like taking an exam. And access to short-term funding, whether to fill a cash flow gap or to underpin growth plans, can involve multiple hurdles often just too steep to get over.
Payments businesses already supporting the online merchant space can deliver a genuine added value by providing banking services including access to funding to their service proposition. And in the current climate that support is going to be more valued than ever – indeed for the Payments businesses that demonstrate a real understanding of SME needs there could be a significant long-term gain.
The business impact of a human virus
As a direct result of lockdown and forced closures, many businesses have proven themselves adaptable and innovative. They have shown their ability to quickly change their offering and deliver to customers unable to visit their outlets in the usual way. It is likely that at least some of the newly developed online offerings will remain as something of a coronavirus legacy.
Online marketplaces are allowing small businesses previously trading only in a local store or through their own website to reach a wider customer base and increase profitability when their shops have had to close. But with online marketplaces having settlement cycles of up to three months, it could be 90 days before these online merchants see any cash from their sales. How can they restock? How can they replace worn-out or broken equipment? How can they expand their offering with no funds to invest?
The digital landscape is fast-paced, it is ever-changing and highly competitive. Merchants in this space need access to payment and financing solutions that can keep up, to support and boost their business rather than hindering and limiting it.
To assess how the landscape for access to payments services and funding has changed – and whether it is ready for this new expanded digital marketplace - we repeated research we carried out among online merchants in the UK in 2018. And we expanded the study to include SME merchants across Europe, to provide insights into the contrasting picture across different European geographies, as well as adding questions for deeper exploration of issues and attitudes.
The findings, to be published in a new e-book early next month, reveal the continuing challenge faced by smaller businesses and the gap in the provision of affordable and accessible business funding. It also reveals the opportunity for payment providers to step in, fill the gap and help boost online merchants whilst also increasing their own revenue.
More businesses now hold a range of international bank accounts in order to better serve global markets. And bank provision is serving merchants more effectively, with the rate of dissatisfaction having fallen. However, small companies are finding it more of a challenge to cover business costs and payroll without external financing and a lack of access to additional funding would have a direct impact on fortunes, with firms across Europe saying they would have to cut headcount and/or that the business would ultimately fail.
Clearly now is the time for the payments sector to step up. The financial ecosystem model remains strong. Banks or Payments businesses working in silo have limited positive impact as resources are spread too thin. But working together within a financial ecosystem, Banks and Payments businesses that focus their resources on developing and delivering solutions in the areas in which they are strongest, working with other providers to build a suite of tailored and highquality services, can deliver better solutions to those SMEs who need it.
Today’s financial institutions – from traditional Banks to Payments businesses and FinTechs - have a unique opportunity. They can step in to help online merchants bounce-back, succeed and prosper in ways they could not imagine a few short months ago when the world was a different place.
Click here to register for a copy of the new Banking Circle white-paper: Mind the Gap: How payments providers can fill a finance gap for online merchants.
About Anders la Cour
Co-Founder and Chief Executive Officer of Banking Circle, Anders la Cour used his experience in legal M&A and venture capital, and strong commercial acumen, to co-found Banking Circle in 2013. In 2018 he orchestrated a USD 300 million management buy-out with EQT and secured a Banking Licence in 2020. Anders is the inaugural Chair of the Emerging Payments Association EU, having been on the EPA Advisory board since 2016. He is regularly invited to speak and present at industry events around the world, has won multiple awards and had thought leadership articles published in a range of industry publications.
About Banking Circle
Next-generation provider of mission-critical Banking infrastructure, Banking Circle is leading the rise of a super-correspondent Banking network. Banking Circle is a fully licensed Bank able to deliver compliant and secure financial infrastructure at low cost. Clients, including Banks and Payments businesses, can now access real-time payments regardless of borders and regardless of size, allowing them to seize market opportunities without having to commit to significant investment in their own internal infrastructure.
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