Small- and medium-sized enterprises (SMEs) make up 90% of the world’s businesses and are crucial contributors to many regional economies. While traditional banking infrastructure and financial services have yet to meet their growing B2B cross-border payments needs, there is a vast opportunity for banks to tap into this lucrative customer base.
Ripple’s latest whitepaper, Big Opportunity in Small Business Payments, suggests that the starting gun is about to sound in a race to close this gap. Banks can gain a competitive advantage by using digital assets and blockchain to improve payment offerings for SMEs.
Some 90% of European Payments Council members believe blockchain will transform the payments industry by 2025, so the opportunity is clear: market share is ripe for the taking.
SMEs’ Need for Speed
The pandemic boosted the global profile of SMEs; a recent Citi report highlights their expansive role in mitigating supply chain disruptions, and Mastercard’s 2022 Borderless Payments Report finds that 58% of SMEs are sending and receiving more cross-border payments now than they were before 2020.
This has played out across the world, as nearly three-quarters of companies in India have increased their use of cross-border payments, as have 70% in Mexico, two-thirds in Saudi Arabia and more than 60% in China and the United States.
Unfortunately — and despite the estimated $110 trillion value attributed to the B2B payments market — the whitepaper reveals small business customers remain underserved by most financial institutions. From slow processing times to high transaction charges and a lack of payments transparency, cross-border flows are plagued with inefficiencies that SMEs frankly cannot afford.
Today, cross-border transaction providers often require SMEs to pre-fund accounts in local currencies while they wait for global payments to settle, tying up working capital that could be better used in other areas of their business. The days or weeks it takes for transactions to clear can also make it harder for SMEs to handle global payments management. Onerous compliance and regulatory requirements only add greater friction to global payments.
While 63% of SMEs still prefer traditional banking methods to support their financial needs, these frustrations and decades-long lack of improvements may be causing their patience to run thin. Slightly more than half of SMEs have already turned to fintech providers to carry out banking or payments services. As more alternatives become available, those that deploy real-time, low-cost and trackable cross-border payments solutions have the best chance to attract and retain SMEs and grow their own customer portfolio.
Pathway to Growth
Addressing the unmet needs of SMEs represents an extraordinary opportunity for financial institutions. Fragmented regulatory environments, divergent regional payment infrastructures and complex internal business processes would all normally stand in the way of capitalizing on this opening.
However, the paper notes that increases in digital connectivity and regulatory clarity, in combination with innovative fintech solutions, have opened a path to overcoming these challenges. Payments technology powered by crypto and blockchain can help banks revolutionize cross-border payment systems for SMEs, providing them the efficiency, interoperability and transparency they’re demanding.
Ripple Payments provides a highly secure payment flow that is immutable and features greater end-to-end visibility throughout a transaction. The decentralized nature of blockchain also has the potential to eliminate intermediaries, expedite transaction times and significantly reduce processing costs. Banks that can provide faster, more affordable cross-border payments will be able to access the $110T B2B payments market by enabling SMEs to thrive in the global economy.
At the same time, Ripple Payments was built to arm financial institutions with accessible on-ramps to support SMEs and acquire new customers. Incorporating new technologies — especially those that offer better prices and improved user experience — is key to boosting their bottom line and expanding their global footprint.
Banks Can Lead on Payment Innovation
As the global economy continues to evolve, SMEs are well at the forefront of transformative change, driving the demand for improved cross-border payment solutions.
By embracing a solution with crypto and blockchain at the center, financial institutions can overcome the pain points associated with cross-border payments, fostering a new era of efficiency, transparency and collaboration. The result will be a thriving ecosystem where SMEs can maximize their part in the global economy and financial institutions can establish themselves as pioneers of innovative payment solutions.
With ample room for advancement, now is the time for financial institutions to lead the way and satisfy SME demands in unprecedented ways, reshaping the future of cross-border commerce for the better.
Download our 2023 Whitepaper, Big Opportunity in Small Business Payments, to learn more about the evolving SME payments market.