Community financial institutions have a unique opportunity to enhance their relationships with business account holders by modernizing their payment operations. Instant payments are particularly valuable to small and medium-sized businesses (SMBs), which historically have very narrow margins and tight cash flows.
A majority of registered businesses in the U.S. are categorized as small businesses and employ fewer than 20 people, according to U.S. Census Bureau data. Although some employ more workers, the U.S. Small Business Administration considers companies with fewer than 500 employees (more for some industries) as an SMB.
With relatively few employees, these businesses must run a tight ship with team members often wearing multiple hats and managing multiple projects simultaneously. In an operation where every dollar saved or managed efficiently makes an impact, instant payments are proving to be a game-changer.
By providing faster access to funds and reducing reliance on traditional payment methods, banks that offer instant payments empower SMBs to lower costs, enhance cash flow, and retain more of their hard-earned capital.
Here's how:
1. Reduced Transaction Costs
Traditional payment methods, such as credit card processing, come with hefty fees, often between 2% and 4% per transaction. For SMBs, these fees can quickly add up, eating into profits. Instant payments provide an alternative that eliminates or significantly reduces these costs. By leveraging real-time payment networks, businesses can send and receive funds directly between bank accounts, bypassing intermediaries and their associated fees.
For example, a small retail shop that processes $50,000 in monthly credit card transactions could save $1,000 to $2,000 each month by shifting to an instant payment system. These savings can be reinvested into the business, whether it's hiring staff, purchasing inventory, or expanding operations.
2. Improved Cash Flow
Cash flow is the lifeblood of any SMB. Delays in receiving funds (common with traditional payment methods) can create operational bottlenecks, making it challenging to cover expenses like payroll, rent, and inventory replenishment. Instant payments eliminate these delays by providing access to funds within seconds of a transaction.
For SMBs, this rapid availability of cash means:
Faster reinvestment: Businesses can immediately use received funds to restock inventory or pay suppliers.
Reduced reliance on credit: With immediate access to working capital, SMBs can avoid taking on short-term loans or lines of credit, saving on interest expenses.
Enhanced financial agility: Quick access to funds allows businesses to respond to unexpected opportunities or challenges more effectively.
3. Alternatives to Traditional Payment Methods
Credit card processing isn't just costly; it also involves risks like chargebacks and fraud. Instant payments offer a secure and transparent alternative. Transactions are irrevocable once completed, reducing the risk of disputes and providing businesses with greater peace of mind.
Moreover, instant payments can support the growing trend of digital wallets and mobile payment solutions, which are increasingly preferred by consumers. By adopting instant payment capabilities, SMBs can meet customer expectations for seamless, modern payment options while reducing their reliance on expensive credit card networks.
4. Strengthened Vendor and Supplier Relationships
Timely payments are crucial for maintaining strong relationships with vendors and suppliers. Instant payments enable SMBs to pay suppliers faster, often within the same day, enhancing trust and potentially unlocking early payment discounts. These discounts, often offered in exchange for faster payments, can further reduce costs and strengthen supply chain partnerships.
5. Earned Wage Access to Attract and Retain Talent
One often overlooked benefit of instant payments is their ability to support earned wage access programs. By offering employees the option to access their wages as they earn them, SMBs can enhance their value proposition to workers. This capability can help attract and retain talent in a competitive job market, particularly for hourly and gig workers who value financial flexibility. In turn, SMBs benefit from reduced turnover costs and a more motivated workforce.
With Instant Payments, Banks Can Be the MVP for SMBs
Instant payments represent more than just a technological upgrade; they're a strategic tool for SMBs to lower costs, improve cash flow, and drive growth. For banks, enabling SMBs to adopt instant payments is an opportunity to strengthen relationships with their customers and remain competitive. By equipping themselves with the right infrastructure and offering robust instant payment solutions, financial institutions can position themselves as indispensable partners for SMBs in today's digital economy.
