Financial institutions must provide powerful payment services

SMEs are the backbone of the global economy – and like most businesses, they have been hit hard by the pandemic. Speaking to EPI, Fiserv's David Chance says financial institutions have an opportunity to step up and help these enterprises resurface stronger.

Chance: In the payments industry, new technologies and initiatives such as instant payments or open banking are widely discussed, and there is an understanding of the business benefits associated with this modernisation.

However, SME business owners are not interested in the details of these innovations. They are interested in how the steps their financial institution is taking to modernise can help them simplify and optimise their own business processes.

SMEs view payments from the perspective of receiving and sending funds. They want the process completed in the most effective, efficient and optimised manner. Financial institutions can benefit from considering this perspective when communicating to their customers, focusing on the impact the service will have on their customers’ businesses.

It’s no longer about selling a specific product, rather how the overall service helps solve the day-to-day challenges faced by their customers.

Chance: Instant payments can provide businesses with seamless, cost-effective and hassle-free payments, reducing friction and costs, and ensuring certainty and transparency. They are fast, secure, available, transparent and digital.

Transactions are made in real time, at the time they are needed, suitable for a vast array of use cases, including just-in-time, zero-hour, end-of-shift and impromptu payments.

As the name suggests, instant payments are made and received within seconds. However, the benefits to SMEs go beyond payment speed and include visibility into the payment, the ability to manage cashflow, and the warranty to ensure finality at the time of the transaction.

Instant payments enable businesses to manage their finances around their own business cycles, redefining and optimising their processes and flows with ease and convenience to meet their own needs.

Chance: Open banking, in essence, enables a simpler user experience. It enables financial institutions to create personalised financial services and engaging customer experiences by bringing together different services and banking functions into one place for SMEs.

Regulations around open banking and the current Payment Service Directive (PSD2) are having a huge impact on how financial institutions interact with their customers as well as the entire financial ecosystem.

Enabling third parties to access transactional and customer data – with the end user’s consent – and initiate payments on their behalf, has the potential to radically alter the way customers interact with their financial institution. Having access to this data allows third parties to provide innovative business services that focus on the SME’s business processes, reducing friction and costs.

When they cannot find the services they are looking for at their financial institution, SMEs are quick to turn to alternative financial service providers or fintechs that focus on the customer experience and the problems that the business is trying to resolve.

Successful financial institutions can embrace open banking and build relationships with fintechs to ensure they retain their valuable payments and lending business.

Chance: The inclusion of business services, also known as overlay services, expands payments capabilities and choice for businesses and establishes a mindset for innovation focused on business needs. Overlay services are essential as they can solve business problems and facilitate the complete business interaction.

They utilise key aspects of the underlying payment rails, such as trust, speed, reachability, security, and efficiency. They are designed to fulfil a business need, rather than just expose the payment flows, and for SMEs, they promise to provide flexible, convenient and secure payment options.

Overlay services have the potential to make life easier by removing barriers for businesses trying to accomplish certain tasks, from validating payee information and holding escrow payments, to verifying regulatory requirements for cross-border partners or suppliers.

Request to Pay is an example of an overlay service. It enables businesses to interact digitally, enabling information to flow between them that supports both the payment and its reconciliation. We are only just starting to see initial overlay services being made available, but businesses are already reaping the benefits of them.

Chance: The pandemic forced SMEs to swiftly innovate, streamline processes and drive efficiency. A large part of that involves a move to automate interactions and information exchanged between businesses and their financial institutions. By doing so, SMEs can increase productivity and data transparency, which in turn leads to lower costs, better insights and higher profitability overall.

Automated payment systems that normalise payment and payment payload data, and ensure that the context of the payment is included, have the potential to create rich sources of information for businesses and financial institutions alike, and both are starting to realise the potential of this opportunity.

A key element for realising this opportunity is through the implementation of artificial intelligence and machine learning for analysis, decision making, and monetisation tasks.

For financial institutions, normalised data and the context for how it was created and used becomes value-generating information. It can be utilised to manage liquidity, develop innovative new services, anticipate customer behaviour and expand reach to find new customers.

Chance: Financial institutions must be commended on the great strides they have taken when it comes to responding quickly to evolving customer demands, the dynamic environment in which we are operating and changing technology. They are moving beyond digital self-services to the delivery of value-added services, with the customer at the centre.

SMEs want the same bespoke and well-thought-out payment solutions that financial institutions now provide to their retail and large corporate customers. Now is the time for financial institutions to pivot from a payment product approach to a business-centric approach, working toward an end-to-end customer journey that is frictionless, automated, efficient, secure and digital.

Understanding how business customers work can help financial institutions deliver the best solutions for their challenges. To help achieve this, financial institutions need to work with a trusted partner that can deliver services and experiences on their behalf.

Becoming part of the wider financial services ecosystem is all about fulfilling customer needs, including the expectations of SMEs for a complete digital experience.