Small and Medium Enterprises to drive Global Payment Ecosystem Innovation

Small and Medium enterprise is going to drive the payment revolution, the foremost reason being that the new global SMEs are being run by tech-savvy young generation entrepreneurs and secondly that the business model is mushrooming globally. New payment concepts based on mobile infrastructure and virtual addresses are emerging rapidly in different geographies to support this changed market dynamics. Accelerated growth in electronic payments landscape has become the backbone of these business models brought in by these disruptive market players.

With internet opening up various buying and selling avenues, SMEs are now expanding their business outside their traditional limited radius and national boundaries. This is further supported by proliferation of smartphones and tablets as cash free and card-free financial transaction medium which is driving the growth in e-commerce spending.

SMEs and MSMEs, with their limited financial resources, depend on real-time payments to support their business and precisely because of which they are becoming increasingly demanding. Regulatory bodies globally are backing the fact that SMEs are the key to future growth for which they are pushing faster payments. Some 18 countries around the world have implemented immediate real-time payments systems for their retail consumers and another 29 and more to follow. Available retail channels and networks are being explored and strenghtened to serve these businesses.

The faster payments infrastructure is being visualized by banks and service providers to deliver innovative products and services. Fin Tech solutions promoting Person-to-microbusiness payments, Bill Payments and Online commerce are gaining popularity. These solutions enable real time funds transfer and bring value to both consumers and merchants by accelerating convergence of mobile commerce and consumer payments.

Banks have been smart enough to understand that Technology, shifting customer expectations, changing global demographics, e-commerce, and the growing regulatory supervision are favoring the transformation. The most radical innovation is from the distributed ledger system pioneered by Bit coin and Ripple labs. If banks do not become part of this journey and support demands of small and medium businesses in addition to servicing their large corporate, then the financial technology companies will become the leaders.

The essential source of revenue and customer retention today are the Payments services offered to corporate and retail customers by banks. Payment services are the key point of competitive differentiation. Banks are striving for this today and reshaping their business models to face the changing market conditions and seize various payment opportunities.

Leaders in the payments industry are responding to this pervasive change by designing two fundamental design paradigms; flexible and cost effective.

The flexible model demands innovation and enables highly customized solutions which are in demand by leading multinationals and large caps who are highly sophisticated and clear about the customization they want. Such model helps bank tailor solution and achieves differentiation in market place.

The cost effective model can serve clients like SMEs and MSMEs whose needs can be met sufficiently with standardized products but with ease of transactions and 24x7. Clients demanding such solutions look for cost efficiency, fast and flawless processing and immediate rectification of errors.

Thus, there is a clear need for banks to be ready to cater to customized and structured business offering to serve their varied customer needs and be technologically future ready.

The payments ecosystems of each geography is being re-defined by regulatory controls to balance the disruption of alternative payment service providers and the established traditional market players. Focus is now on the faster payments systems of various geographies to talk to each other across borders to bring in more convenience to businesses. In a white paper by SWIFT, global adoption of retail payments systems has been highlighted.

To summarize, alternate businesses models and cutting edge technology is re-shaping the next generation payments services and options are on the table. SMEs and MSMEs will drift to the ones that deliver quick TAT and ease of transaction. Legacy and new models will now have to work together at a domestic and cross-border level.