Anders la Cour, CEO, Banking Circle
Anders la Cour, co-founder and CEO of Banking Circle, explains why the lack of access to instant payments is holding businesses back in today’s fast-paced market, and how financial services providers can build solutions to better serve their clients.
SMEs and start-ups have been around since the first entrepreneur set up shop (or possibly farm). In contrast, instant payments are only just becoming a reality for businesses. But if companies have succeeded before instant payments, why are they such a hot topic and an apparent necessity today?
Some still believe instant payments are a luxury that businesses simply do not need. After all, payments have always taken days or weeks in the past. But if we look back over the past 15 years or so, we can see significant change in the market yet comparatively little change in the payment processes and timescales involved. If we look ahead 15 years, expecting the rate of change to continue or even accelerate, it is impossible to reconcile the opinion that current mainstream payment options will remain fit for purpose.
Everything is faster now. Society is more connected. Digitisation allows consumers to purchase goods from sellers anywhere in the world, without a second thought for details such as foreign currency exchange rates. While this is great for international trade, boosting the global economy and helping to break down borders, it requires a lot from the underlying provider, and eventually the SME seller takes the hit – in transfer fees or slow settlement cycles stalling cashflow.
If an SME wants to keep up with the rest of the market it needs the ability to restock rapidly, to expand to new markets and territories. That requires working capital, which in turn requires faster payment processing. To deliver that, financial services providers need to start working together more closely. We must collaborate to deliver solutions which help rather than hinder SME growth. Real-time or instant payments are essential to allow SMEs to keep up the pace.
The topic of financial exclusion is usually associated with the underbanked or unbanked consumer population, often focusing on those living in the developing world. However, it also affects small businesses around the world. And don’t just think third world – it’s a first-world problem too. Many smaller companies are unable to access financial services at a reasonable cost in way that supports business success and growth.
Banking Circle research found that only one in five SMEs haven’t experienced problems borrowing from a bank to support their business. This highlights an imbalance in the support available to SMEs. Demonstrating the potential impact of financial exclusion, nearly a quarter of respondents to our survey said that struggling to access additional funds would lead to having to let employees go. More than one in 10 felt the business could ultimately fail as a result.
Key aspects for increasing financial inclusion
Today’s global economy means that whether the business is a Fortune 500 company or an SME, it must act as a global player. Lack of access to the necessary financial tools creates serious challenges in growing the business. For SMEs and start-ups to be in the best position to compete and prosper they need full and fair access to global scale financial services.
This starts with access to bank accounts – offering the ability to transact in the business’s local currency as well as the currencies of the countries in which they wish to trade. The ability to transfer funds into these other regions is essential – as is the availability of working capital to support growth.
Slow settlement cycles – especially through online marketplaces – can have a devastating impact on a business’s working capital, reducing its ability to restock rapidly, increase headcount, upgrade equipment or move to larger premises. Unable to advance and grow the business through these channels, SMEs stall, and many ultimately fail.
How slow is ‘slow’?
Different payment methods have different settlement cycles. The speed with which a payment reaches the seller also depends on the recipient and the countries involved in the payment.
Marketplaces are an example of very long settlement cycles. With so many buyers and sellers involved, marketplaces pass on payments in regular settlement cycles, often up to 90 days long. This means an SME which sells stock to a buyer through an online marketplace may not receive the funds due until three months after they have dispatched the goods, potentially leaving them unable to restock, slowing cashflow and growth potential.
The settlement cycle is not determined by technology alone. There can be an intermediary somewhere in the value chain who is managing their counterpart exposure by holding back funds. So, if a third-party can step in and take on that counterpart exposure, the speed of settlement increases significantly, increasing the growth of SMEs and the wider economy.
How does Banking Circle bring a solution?
Working with a third-party financial infrastructure such as Banking Circle, banks and other financial institutions can increase financial inclusion by providing their customers with faster, cheaper banking solutions – including multiple currency banking accounts, local clearing, cross-border payments and flexible business lending – without the need to build their own infrastructure and correspondent banking partner network.
We enable financial services businesses to do what they’re really good at – serving the end-client successfully and efficiently. Through Banking Circle, the financial services provider can offer their clients access to working capital and bank accounts on a global scale, as fast as possible and at low cost.
The rising super-correspondent banking network, led by Banking Circle, brings huge benefits to banks and payments businesses without the usual significant investment required to build and deploy these tech-based solutions in-house. This provision is reducing the cost of banking and transfers, improving cash-flow, enabling SMEs to grow and levelling the field to allow fair competition between SMEs and larger players.
The value of SMEs in the global economy must not be underestimated, and we believe it is vital that financial services providers work together to build and deliver the services SMEs require, at a cost they can afford and in a manner that fits their unique business. In turn, this will help the SME reach its potential and benefit the wider economy – including the financial services providers themselves.