Spain-based treasury management, payments, and FX fintech Neo has launched a report about the challenges SMEs face regarding cross-border payments. According to the official statement, Neo surveyed CFOs and treasurers at UK-based SMEs with cross-border operations, in a bid to query them regarding the obstacles encountered when transferring funds overseas and the risk management strategies that they employ.

The need for such an analysis was informed by the fact that SMEs represent an underserved segment of the market. Because of digitalisation and the expansion of ecommerce, SMEs have started engaging in business activities with international suppliers and customers and, consequently, started encountering difficulties when dealing with cross-border payment challenges. Moreover, the report was developed as a way to offer a better understanding of the current situation SMEs face.

According to the official release, although consumers have noticed enhancements in their cross-border payment experiences, there have been minimal changes in the regulations within the B2B market. Key findings of the research Neo’s research outlines three major tendencies in the market. Firstly, because of the reliance on traditional banking systems for cross-border payments, SMEs are experiencing friction.

Some of the main challenges that businesses faced had to do with unfair pricing, slow payments, and reporting difficulties. Even more to this point, the survey showcased that 78% of SMEs rely on traditional banks for cross-border payments, while 65% use non-banking alternatives such as payment service providers, money services businesses, or electronic money institutions. However, as a response to the difficulties encountered in this regard, 92% of the SMEs surveyed reported that they are exploring new alternatives, with virtual account solutions being one of the most popular offerings.

Secondly, respondents have noted that, due to its volatility, FX has become a critical matter in 2022. In this case, the challenges SMEs encountered were related to pricing, speed, as well as a lack of transparency. According to the data, the larger portion of the respondents (83%) still depend on conventional banking services for their foreign exchange (FX) requirements, while 66% opt for non-banking financial institutions like FX brokers and fintechs.

When it comes to risk-security however, the survey indicated that 95% of the SMEs report having a FX risk management policy, and 94% have their own in-house FX expert. Finally, most respondents indicated that they were contemplating diversifying their bank pools in the immediate future as a direct result of the banking crisis. However, it is noteworthy to point out that reportedly only half asked about fund safeguarding capabilities at partner banks.

As emphasised in the report, Neo’s specialists argue that treasury teams and CFOs should seek diversification by engaging with at least three different banks. Moreover, the report outlines that SMEs should conduct due diligence to ensure that all their banking partners have strong financial standing and that they adopt a risk-averse approach. Ultimately, the report suggests that SMEs have become disillusioned with their conventional banking partners and that fintechs can provide alternative solutions to address the challenges in the cross-border payments area.

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