Putting The Brakes On British Business

I wrote a blog last month that spoke about the unnecessary friction within our industry and the simplicity that all of us who shop online crave. Having taken some time to think about this, I’ve come to realise that this friction isn’t just for consumers but is also prevalent for businesses in their dealings with financial services providers.

Let me give you one example. A new business wanting to sell online will require both a merchant account (for accepting card payments) and a business bank account. Simple? However, all but one of the banks have sold off their merchant account divisions. So what impact does this have? Well, it means two separate application forms (most likely paper), two sets of separate correspondence to keep up with and (more often than not) two, three, four, five, even six weeks before their accounts are approved and you're ready to trade. Throw in a web developer, accounting software a shopping cart and that’s enough friction to start a bonfire!

Once up and running, things don’t get any easier. You start growing and see a potential customer base in Europe, so want to open a Euro account. Repeat the above process all over. You want to integrate your expense reports and payroll into your banking? Best of luck, you’ll need it! Want to see the sum total of your business transactional activity in one place to save you time and hassle? You’d better be good at Excel or know someone who is!

I’ve previously written about new entrants into financial services and the success they’ve had in shaking up the market. One of the inherent advantages these providers bring is the speed at which they make decisions and can adapt to business’s needs. Clearly there are regulatory requirements that cannot and should not be avoided in setting up and managing business bank accounts. Sometimes though, innovation should be simply about solving the real issues that customers have, rather than creating solutions to problems that don’t exist.

Consolidation within the UK financial services industry has caused many of the banks to sell off their merchant account division together with other services deemed peripheral. Unfortunately the requirements to source these same services remain identical for businesses wanting to trade online. Business owners have no real love for their financial services provider – and after the last five years, who can blame them? – but it’s difficult to disagree with the argument that they are being short changed by cumbersome processes and legacy systems that at best are an irritant and, at worst, result in unnecessary friction turning into the brakes being clamped onto a business’ growth.

Any financial service provider who can remedy these issues truly would be innovating.

Rise of the Alternative Payment Solutions

With consumer behaviours rapidly evolving, the ability to choose how, when, and where to pay for goods and services has never been so important. As alternative forms of payment are emerging, a flexible approach to accepting payments is vital to the customer shopping experience. Whether it is online, mobile, e-wallets, or contactless payment acceptance channels, businesses have opportunities to generate increased sales by offering these options to their customers.

The global economy has seen significant growth from the emergence of electronic payments, with additions of over $983 billion between 2008 and 2012 according to a recent Moody’s report. This can be attributed to increased convenience, greater access to an increasing number of channels, and guaranteed payments for both consumers and businesses. The content below is to inform you on methods of alternative payment used by consumers that should be considered by your business:

Online: E-commerce has driven significant economic growth in the UK, with contributions by this channel to the GDP expected to reach £225 billion by 2016 according to a recent study by the Boston Consulting Group. Accepting online payments through your website will provide your customers with a convenient, secure way to pay for goods and services with just a few clicks of their mouse. Online payment processing can be integrated with your business bank account, making it easier to reconcile your funds and accelerate your cash flow.

Mobile: Developments in mobile commerce have allowed businesses to offer improved access to their products and services via mobile apps making it easy for consumers to make payments on their mobile devices. Consumers can now make purchases anytime and anywhere, without sacrificing efficiency and security. Businesses can also take advantage of mobile Point of Sale solutions allowing them to accept card payments whilst they are on the move.

Electronic Invoicing: Electronic invoicing is a highly efficient way to accept payments from your customers, accelerating the speed of incoming payments and reducing the time and hassle of chasing customers. It will enable your business to track and manage your invoices and balances, while also dramatically reducing the time and costs associated with invoicing. Look for a solution that is integrated with your credit card processing for easier management and quicker access to your funds.

E-Wallet: Electronic wallets are used for online and mobile purchases where a customer can securely save their credit or debit card details, automating the order form process. This eliminates the need to re-enter card details when making multiple purchases, and can be accessed by password, PIN, or even voice biometrics. Protecting the contents within the e-wallet is the responsibility of the e-wallet provider, allowing you to avoid situations regarding mishandled or misused customer information.

Contactless Cards: Although they can only be used in a physical store, contactless cards allow consumers to make low-value purchases quick and easy by just placing their card in front of the card reader. Contactless provides a more efficient transaction process, allowing you the opportunity to serve more customers through reduced queues.

Flexibility towards emerging and alternative payments can become a huge asset for your business. Only accepting cash and cheques will limit how and when you can serve your customers, and will put you in a competitive disadvantage to those businesses that have already embraced the emerging technologies. Prepare your business for the future, and adapt to customer expectations. You don’t want to be in a position where you are scrambling to catch up.

Written by: Ronnie Kondub

Unnecessary friction with businesses cash flow

One of the interesting things about industry conferences is when guest speakers, who, free of the baggage carried by most of the attendees, tell you exactly what your customers want based on evidence, empirical data and examples from success stories from other industries. Whether these opinions tally with your own product and development road map is another matter and is a topic best left to another day!

At the Visa Insights conference last month, there were two such examples. David Rowan, Editor of Wired magazine, was clear in his belief that the buzz words among businesses and consumers when it comes to payments are ‘friction free’. Apple and Amazon already lead this; everyone else is playing catch up. This got me thinking about what ‘friction free’ would actually mean to businesses.  

Most likely, they would agree with an earlier speaker from Facebook that ‘3D Secure – the process whereby a cardholder goes through an extra step of verification for online purchases – was a good idea at the time. That time has passed.'  They would probably also comment that it’s all very well one part of their payment cycle working smoothly but if the remainder remains trapped in a web of bureaucracy, slow processes and systems that don’t talk to each other, it’s irrelevant anyway.

Increasing competition in financial services is a concept much lauded by government, trade groups and regulators alike. In the business lending space, the likes of Funding Store, iwoca and Platform Black are harnessing business demand and clever technologies to provide genuinely innovative lending services to SMEs that are being taken up rapidly. In transactional banking though, the reverse is true – competition has actually decreased in the last ten years. The banks (who still control 91% of the UK market by the way) have bought up smaller rivals and new players are put off by the complexity, cost and the high degree of regulation. Surprise, surprise, the victims of this are UK SMEs continue to suffer from slow cash flow, difficult access to lending and the perception that there is a real lack of support for their business.

So, having laid out the issue, what exactly would ‘frictionless’ mean for a typical UK business. My own view is that this would mean being able to use all the services they need to make and accept payments from one account. This account provides timely and detailed reporting and can easily fit with their accounting package. They have the ability to pay or be paid by any customer or supplier around the world, they know where their payment is and their cash flows freely. Is that really so much of an insight?

Broaden your business horizons

In amongst all the reports of a never ending tough economic climate for businesses, there are still some big opportunities out there that, if taken, can make a big impact on your business. This is supported by the aspiration of the 6 in 10 businesses that are targeting growth for their business for the next 12 months, according to a recent FSB survey.

With that in mind, here is a round-up of the top financial and business opportunities to support SMEs as we see them:

Funding schemes – There have been many changes and introductions of Government backed schemes for SMEs, designed to boost growth. These include: Community Development Finance, Enterprise Finance Guarantee, Business Finance Partnership, Start-up Loans, Regional Growth Fund (RGF), Growing Places Fund and EU funded sources of Finance. Depending upon your business, you may be eligible for several of these schemes, so if you are looking into start-up or additional sources of funding, they are well worth looking into.

Going global – Many businesses are seeing the rewards of entering into overseas markets, which allows them to both diversify their business and broaden their potential customer base. When looking at international opportunities, businesses will need to carry out considerable planning and research before attempting this step but support is close to hand. The UK Export Finance and UK Trade and Investments are government departments dedicated to providing support to UK exporters on all topics of international trade including financing solutions and are a good starting point for advice.

Government programmes – There are a number of government backed schemes that have been introduced to support the UKs SMEs. The Growth Accelerator scheme is a £200m programme aiming to help 26,000 SMEs over 3 years to overcome barriers to growth. In addition a further trade-specific example is the Manufacturing Advisory Service (MAS), a national service to support manufacturing businesses grow by providing experienced advisors.

Changes in buying channels – As you know, consumers are moving towards online and mobile methods to browse and shop, with internet retail sales estimating to grow from £28.3bn in 2011 to £33.7bn by 2015 according to a recent paypoint.net report. There are many ways you can incorporate these channels into your business with little hassle including a payment app on your smartphone to allow you to take payment on the move, or having an online shop to allow your customers to purchase your goods and services online using any device. Ensuring your business develops in line with your customer’s behavioural changes will be key to securing new customers and retaining existing business.

New technology – There are continuous advances in new payment technologies that if implemented correctly can be key in supporting your business to grow and potentially save you money. These technologies can range from streamlined e-invoicing to enable your business to get paid quicker and accelerate cash flow, to creating a mobile app to reach a considerably wider customer base. The size of the opportunity created will depend upon the scale and purpose of the technology and how you choose to use it within your business. Looking at ways to use payment technology to streamline your finance systems will make a huge difference in time spent running the day to day elements of your business, as well as save you valuable money on fees and unnecessarily high monthly fees.

Post-Budget Blues for Businesses

Another budget goes by and commentators are still picking over the bones of the Chancellor’s announcement. As it is to be expected, spin and hubris emerges from all the expected channels but cutting to the heart of the message, it looks like 2013 will be seen as a good budget for small businesses, with the cuts in corporation tax and National Insurance being nearly universally welcomed.

Taking the budget in isolation, not many would disagree with John Walker from the FSB that this helps ‘businesses grow and create jobs’ but is this really enough to resolve the years of apathy, neglect and mistreatment many small businesses have suffered over the last five years? Who is to blame for this malaise can – and will – be hotly debated right into the next election and is certainly a complex picture. Looking at things from within the Financial Services industry, a clear and uncomfortable hypothesis has emerged:

The Global Financial Crisis and the subsequent Financial Services ‘overhaul’ may ensure that the big banks are more resilient BUT it has only made life more difficult for the average UK small business. 

Think about it. The payment issues faced by SMEs – late payments, increased fees and unavailability of credit - are getting worse whilst many sectors are facing a collapse in demand as their customers tighten their belts. In parallel, banks have begun divesting many of their business units to third parties, either for commercial reasons or because the government has their foot firmly on their throats!

To give just one example of what this means for a UK SME - you’d have thought that a business deciding to accept credit and debit cards via a merchant account from their website would require a single call to their bank who would arrange to set up this facility within a couple of days. Not so. All but one bank has sold off their card processing arms.

This means a call to a completely new company, a lengthy application process of 4-6 weeks and once you have the merchant account and it bears nothing in common with their business current account they already have. Double the number of accounts the business has to manage, double the reconciliation, double the hassle and – more likely than not – double the costs!

Throw in other financial services that a an SME may require like loans, corporate card programmes, currency services and the network of suppliers quickly becomes unmanageable. There’s a clue in our name but we believe that cash flow truly is the most important (two) words for any business and yet the status quo only serves as blocks to businesses accessing their money.

Over the next few issues, we will be investigating the payments issues facing British SMEs and how the market is shaping up to help ... or hinder ... them in their quest to make their businesses grow. In the meantime, we’d love to hear your opinions and suggestions on what businesses like ours should be doing to help SMEs. Join the debate at @cashflows_news