Banks must strengthen payment services to support small and medium enterprises as the backbone of the economy
PARIS–(BUSINESS WIRE)–New payment methods (instant payments, e-money, mobile and digital wallets, account-to-account, QR codes) are leading the charge with consumers, but the looming threat of recession and rising inflation rates, coupled with geopolitical concerns persistent, poses a host of new challenges.
Despite these global headwinds, the Capgemini Research Institute’s 2022 World Payments Report, released today, found that new payment methods are expected to grow further, from around 17% of total transactions other than in cash in 2021 to around 24% by 2026. However, while B2C payments have flourished, the B2B value chain has too often been overlooked.
The payments industry has remained resilient despite recent unprecedented market volatility, accelerated by the adoption of innovative new digital payment methods for consumers. However, many banks do not provide the same support for small and medium-sized businesses.
According to the report, despite promising post-pandemic recovery levels, SMEs continue to struggle with cash flow issues and conversion cycles, which is delaying the next phase of growth for many. This has led to a growing demand from payment service providers to scale up, realign their priorities and assemble the right tools to help SMEs explore new market opportunities.
“Small and medium enterprises are the backbone of global economic growth, contributing half of global GDP and global employment. And yet they are among the hardest hit by recent market volatility,” said Jeroen Hölscher, Global Head of Payments and Cards at Capgemini. “Banks and payment service providers must realign their priorities to capture this untapped value through innovative and experiential payment services.
Assemble the right building blocks to improve SME journeys
While the SMB market segment is now worth more than $850 billion globally, the report cites, SMBs are still often overlooked in favor of large corporate accounts and the largest retail market by the traditional banking sector. .
As a result, SMEs often struggle with cash flow issues, cybersecurity risks, low liquidity and operational inefficiencies that fuel existing dissatisfaction with incumbent payment service providers. In fact, 89% of SMBs surveyed feel underserved by their primary banks and are considering switching to a more accommodating alternative PayTech challenger.
A transition to a digital payment provider would allow SMBs to mirror the trend already underway in consumer markets. For example, the report found that non-monetary B2B transactions globally are expected to grow at a CAGR of around 10% over the period 2021-2026.
To win back SMB loyalty, banks will need to amplify the value of the platform that can only be unlocked by tackling the restrictive legacy systems that currently stifle growth.
The report found that more than a quarter of banks struggle with monolithic and inflexible infrastructures, with 75% of executives prioritizing costs to keep current systems running over innovative new value propositions – a clear investment barrier. necessary in the innovation and flexibility that SMEs need.
Instead, payment companies should embrace composability, which allows them to select and assemble building blocks in various combinations to meet customer requirements. In doing so, businesses can configure their offerings to best align with SMB needs, powered by harmonized data, to deliver a unified value proposition by enabling payment businesses to build B2B marketplaces for SME.
Explore new payment possibilities with Distributed Ledger technology1 solutions
Among the wealth of innovative technologies adopted by banks to stay in the game, distributed ledger technology (DLT) emerges as a key advantage to thrive in the era of transparent value exchange. While many banks and payment service providers (PSPs) agree on its industry-transforming potential, adoption will remain cautiously stable as limited resources continue to limit investment opportunities. As the market evolves and PSPs begin to explore this new technology, the report outlines several potential avenues to follow.
64% of SMBs believe DLT could become a viable add-on option to existing payment networks as cross-border B2B transactions on blockchain continue to grow alongside cryptocurrency traction. Therefore, DLT can be seen as part of a core multi-rail strategy to better support these global and regional payment networks.
Likewise, the rapid rise of more unregulated crypto assets has led many banks to explore opportunities stemming from central bank digital currency (CBDC). Finally, the report highlights that those looking to become industry leaders are already adapting DLT use cases for the next wave of growth opportunities.
The World Payments Report 2022 draws on information from two main sources: the Global Survey of Small and Medium Enterprises 2022, which included 150 respondents, and surveys and interviews with bank and corporate executives. Global Payments 2022, which included 125 senior executives from major banks. These top research sources cover information from 17 markets: Australia, Canada, France, Germany, Hong Kong, India, Italy, Japan, Malaysia, Netherlands, Singapore, Spain, Sweden, Switzerland, United Arab Emirates, United Kingdom and United States.
About the Capgemini Research Institute
The Capgemini Research Institute is Capgemini’s internal think tank on all things digital and its impact across all industries. He has been the editor of Capgemini’s flagship series of global reports for over 25 years, with a particular focus on financial services and publishes thought leadership on digitalization, innovation, technology and business trends affecting businesses. banks, wealth management companies and insurers around the world. An independent agency ranked a recent World Retail Banking Report, published by the Institute, among the top 10 publications among consulting and technology companies globally.
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1 A distributed ledger is a decentralized, shared, and immutable distributed database of transactions. The technology infrastructure and set of protocols that enable immutable access, validation, and updating of records across a distributed ledger network is called Distributed Ledger Technology (or DLT).