Table of Contents
Introduction
In the ever-evolving financial landscape, instant payments promise a revolution for small to mid-sized businesses (SMBs), offering a lifeline in managing accounts receivable (AR) processes efficiently. However, this promising innovation comes with its challenges, primarily the costs associated with adopting such technologies. Surprisingly, while these instant payment methods present a significant opportunity for growth and operational efficiency, their adoption is uneven among SMBs, with cost being a significant barrier. This disparity raises the question: How do high transaction costs impact small businesses' willingness and ability to adopt instant payment methods, and what solutions exist to overcome these challenges? This blog post delves into the current situation, exploring the nuances of instant payment adoption among SMBs, the role of cost, and potential pathways to increasing accessibility to these innovative payment solutions.
The urgency for a closer examination of this topic stems from recent findings suggesting that nonrecurring or ad hoc payments form a substantial part of monthly revenues for SMBs. Yet, the adoption of instant payment methods, which could streamline the AR process and provide quick access to funds, is hindered by high costs. Particularly for the smallest or micro SMBs, which rely mostly on ad hoc receipts, these costs are a deterrent despite the clear benefits. This blog will explore the various facets of this issue, including preferences among SMBs for specific instant payment methods, the impact of fees, and how generative AI could potentially bridge the lending gap for SMBs seeking to invest in instant payment technologies.
Understanding the Dilemma
Recent collaboration between PYMNTS Intelligence and Ingo Payments sheds light on the complex relationship between SMBs and instant payment adoption. The report, gathered from a survey of 405 SMB receivers across the United States, outlines a clear preference for instant payments due to their ability to ensure immediate access to funds. However, it also highlights a significant barrier: the cost associated with these transactions.
Instant Payment Preferences and Challenges
SMBs show a varied preference for instant payment methods, with options like Zelle, push-to-card payments, and the RTP® network providing diverse solutions. The findings indicate that smaller SMBs, especially those generating less than $100,000 in annual revenue, often rely on Zelle due to its lower entry barriers compared to other methods. Unfortunately, these smaller businesses also face higher fees for instant transactions, paying on average 51% more than for other payment types.
Cost as a Major Barrier
The crux of the issue lies in the disproportionate cost impact on the smallest of SMBs, which pay significantly more to receive ad hoc payments instantly. This high cost is linked to several factors, including reliance on manual processes for managing AR and a higher transaction fee for instant payments. For these businesses, every penny counts, and the higher fees can erode their already thin margins.
The Role of Generative AI in Bridging the Gap
In contrast to the challenges faced in adopting instant payments, generative AI presents a burgeoning opportunity to streamline SMB underwriting, a process central to securing the capital necessary for investments in innovations like instant payment systems. Companies like Credibly are pioneering the use of AI to refine underwriting processes, thereby making it easier for SMBs to obtain the capital needed for technological investments. This advancement heralds a new era of accessibility to instant payments for SMBs, potentially mitigating the cost barrier.
The Path Forward
The adoption of instant payment technologies by SMBs is fraught with challenges, primarily due to the high costs associated with these transactions. However, understanding the nuances of these challenges and the potential solutions is crucial.
Streamlining AR Processes
One immediate area of focus should be on enhancing AR processes to reduce reliance on manual interventions, which significantly add to the cost. Technological solutions, streamlined invoicing, and payment processing can help in this regard, making instant payments more viable for SMBs.
A Future Driven by AI
The potential of generative AI to transform SMB underwriting cannot be understated. By facilitating faster, more accurate risk assessments, AI can make it more feasible for SMBs to secure financing for technological investments, including those in instant payment systems. This would not only level the playing field but also open up new avenues for growth and efficiency among SMBs.
Advocacy and Policy Change
Another avenue for addressing the high costs of instant payments is through advocacy and policy change. By working to reduce transaction fees and encouraging more widespread adoption of affordable instant payment methods, stakeholders can help mitigate the barriers facing SMBs.
Conclusion
The journey of SMBs towards adopting instant payment technologies is complex, shadowed by the high costs of transactions. However, the potential benefits of such systems, including improved cash flow, efficiency, and customer satisfaction, present a compelling case for overcoming these hurdles. Through a combination of technological innovation, financial support, and strategic partnerships, the path to widespread adoption of instant payments by SMBs could be within reach. The future of business payments lies in instant, efficient transactions, but it requires collaborative effort to ensure that all SMBs can partake in this future without being hampered by prohibitive costs.
FAQ Section
Q: Why are instant payments important for SMBs?
A: Instant payments ensure quick access to funds, improving cash flow, reducing AR processing times, and enhancing overall operational efficiency.
Q: What are the main barriers to the adoption of instant payment methods by SMBs?
A: The primary barrier is the high cost associated with instant transactions, especially for the smallest of SMBs.
Q: How can generative AI help SMBs in adopting instant payment technologies?
A: Generative AI can streamline the underwriting process for loans, making it easier for SMBs to obtain capital for investing in instant payment technologies.
Q: What immediate steps can SMBs take to mitigate the cost barrier of instant payments?
A: SMBs can focus on streamlining their AR processes to reduce reliance on costly manual interventions and explore financial products designed to support technology investments.
