Last week, Bottomline hosted a webinar on the subject of payments & how small businesses re holding up right now. Bottomline are a company focused on managing and digitally transforming the end-to-end payment life-cycle. Their goal, quicker payments & less fraud for companies.
Now in its fifth year, the report that they are now known for producing on an annual basis, the ‘Business Payments Barometer’, consists of an online survey among 800 financial decision makers from small, medium, large and enterprise businesses in England, Scotland and Wales.
The report focuses on the major payments challenges businesses face surrounding fraud, the adoption of new payments technology and regulatory awareness.
This year’s report was in fact more comprehensive than ever, as they doubled the number of survey respondents to over 800. These respondents were all British-based and, as Ed Adshead-Grant illustrated, made up of “the community of business and corporates.”
The timing of this year’s survey was of particular interest as well, due to the pandemic crisis. As Ed Adshead-Grant, General Manager of Payments at Bottomline Technologies, describes it as “actually the very final snapshot of businesses and their thinking just before COVID struck […] an interesting rich dataset just pre-COVID to set a benchmark for the future.”
Some key stats from the report:
- 81% of businesses were unable to recover more than half of their losses caused by fraud, a figure which rises to 88% for small businesses
- Despite an increase in new payments initiatives and regulations, just 59% of businesses feel prepared for Open Banking – down 8% from 2019
- While 70% of businesses agreed that responsibility for sanction checking was with the banks in 2019, the figure dropped to 56% in 2020. Businesses are more prepared to share the load, with 71% suggesting they are happy to take on more responsibility for implementing anti-money laundering regulations
In discussing this report, the attendees were focusing on three pillars 1) Efficiency: The troubling trend of late payments 2) Risk & Compliance: The Fraud issue that never seems to go away 3) Changes: How different companies are adapting to all of these developments.
Panellists for the discussion include:
- Ed Adshead-Grant – General Manager of Payments at Bottomline Technologies (Moderator)
- Gavin McLean – CM&P Product, Global Transaction Banking at Lloyds Bank
- Naresh Aggarwal – Associate Policy & Technical Director at Association of Corporate Treasurers
- Dan Bellis – Senior Policy Advisor at Federation of Small Businesses
One of the key takeaways from the report, was that 21% of small businesses are now feeling vulnerable to changes in the trading environment.
Gavin Maclean concurred with these findings, pointing out that this applies to all types of businesses, large and small. In terms of the small businesses, he says that they were “probably worrying about traditional worries of fraud and risk and regulation and all that stuff.” And then of course, came the COVID-19 crisis “So having felt vulnerable before, they must feel like all of their nightmares have come in one night.” As for the large businesses, he wonders that “if the larger businesses that did not feel quite so vulnerable pre-crisis are maybe feeling that they actually were a little bit more vulnerable to changes in the trading environment than perhaps they realised.” With this added vulnerability, comes a nervousness, and a potential resistance, to change.
One of the main changes that is on the horizon in the world of businesses, and how their payments are conducted, is Open Banking. Open Banking is likely to bring about a plethora of changes, for businesses as consumers alike, once fully implemented.
According to the report, only 59% of businesses were responding that they felt ready for Open Banking. This was, unfortunately, a drop of 8 percentage points from last year. For many, that will be a potentially concerning stat, given that a) this is a change long-awaited by many and b) the adoption of Open Banking was hoped to be accelerating, not stalling.
The panelists were challenged on what exactly might be causing this nervousness about Open Banking, and what the implications could be. Gavin Maclean began his answer by charting the recent course of Open Banking, “I think 2018, 2019 was that intense period of preparation for open banking […] what has followed has been the modest or perhaps slow emergence of new services built upon open banking.” According to Gavin, this slow down is partly down to external factors, “I think it has dropped down the priority list as other things have come to greater prominence.”
Naresh agreed with Gavin, suggesting that companies are right now asking themselves “why should [I] invest time and energy looking at some of these new changes when you have got other things, firefighting things you have to face here and now.” This comment is aimed particularly at startups. Whilst they are more likely to be receptive to Open Banking technologies, many of them will be dealing with their own issues, or trying to assimilate a different, new technology solution. And in more recent times, you can imagine this has only got worse, with the COVID-19 crisis.
Despite these challenges, and the numbers that the report throws up, Gavin remained positive. His optimism is founded on the figures themselves, such as they “routinely see tens of millions of calls upon our systems every month for account information service.” So, for him, demand is increasing, and competition in the sector is only hotting up, “Now new services are emerging and I think the best is very much to come from open banking.” It will remain to be seen if next year’s report reflects such optimism. That will hopefully be the case, of course, but it is hard to make any firm predictions or hopes when you have a situation such as COVID-19.
A Lack of Efficiency
The second notable statistic has to do with efficiency, and more specifically, the issue of late payments. The issue of late payments is a well-known problem within the small business and startup community. In last year’s report, 92% of respondents reported that they had had to deal with late payments. Thankfully in this year’s edition, the figure had dropped slightly to 89%. This is only a minor drop, however, and maybe will regard this figure as still being unacceptably high.
The Prompt Payment Code (PPC) is the Government’s attempt at trying to fix the issue of late payments. Introduced in 2008, this regulatory body has undergone a lot of changes since its inception, along with an increased number of signatories. As Bottomline’s stats show, however, there is still a long way to go.
Naresh struck a more optimistic tone than expected, in the face of the numbers, “I think it is very difficult to be quite so binary.” He cautioned against using this number to say that “therefore the industry is really doing badly.”
Naresh then explained that a lot of the negativity in the industry stems from the usage of PPC. One of the key tenets of PPC is that you are encouraged to pay within 30 days, or at the very least 60 days. Naresh pointed out that there are many suppliers and companies out there who have “negotiated 90 or 120 day payment terms […] they would be shown as being delinquent on payment code.”
This shows that the PPC is perhaps too blunt an instrument for the problem which it was introduced to solve. Naresh also was at pains to highlight that it’s not necessarily the PPC at fault, because “it is more about how we communicate this information to our supplier.” For instance, if someone is going to have to pay a supplier late, but communicates this fact to them promptly, the actual problems should be fairly minimal.
Dan Bellis chimed in agreement about the scale of this problem, and also took some time to highlight how important an issue it really is for small businesses and startups: “I think late payments for small business quite frankly sinks the ship. It is devastating for them […] now this is not happening to one or two small businesses, this is happening across the place.”
A devastating problem for sure, but how does the industry as a whole go about solving this? Dan has a clear candidate in mind, he’s looking towards “these big businesses to help lead the way on this to help fight the charge to increase speedier payments for small businesses.” Luckily, there are apparently signs that large businesses are starting to step up to the plate when it comes to their payment responsibilities. The reason – their own self-interest. Dan points out that they aware of the need to pass their cash, in the form of payments, down the supply chain. This is due to the symbiotic relationship between large business and their suppliers, if these businesses hold onto cash too long, these companies may go under, which would have a disastrous impact on their larger counterparts.
Fraud, Risk & Compliance
The third and final pillar of the report and this discussion was surrounding risk, compliance, and ever-present problem of fraud. The leading statistic from the report on this issue was that, during this last year, 88% of businesses have been unable to recover more than 50% of any fraud-driven losses they have suffered.
Falling victim to fraud, many will agree, is something that is already very concerning. The fact that once companies have suffered a fraudulent event, they are unable to recoup even half of their losses, is something to raise eyebrows. This double-whammy is a concerning ‘leakage’ that recurrently occurs, year after year. In fact it’s so common, Dan said, that for small businesses, many see fraud as “ just part and parcel of the day job,” and he admits that its not any easy problem to solve, “It is often down to human error, human instinct and it is very difficult for small businesses to manage internally.”
To improve this situation for small businesses, and to reduce the overall size of their losses, Dan laid out that you have to take a dual approach. Firstly, you will need to adequately equip businesses so they are able to prevent fraud and, secondly, provide them with the tools to fully recoup their losses from any fraud that still does occur.
With regards to the issue of recovery fraudulent losses, Dan had no doubt as to who holds the keys to this problem “That really is where good relationships between the small businesses and their financial service provider, whether that is their bank or payroll offering to- that is where that really comes in, are incredibly helpful for small businesses who are looking to recover that loss.”
Dan finished his comments on the issue of late payments on a sombre note, reflecting on the real-world impacts of fraudulent actions “Ultimately, whether it is fraud or whether it is late payment I think you have to begin to understand that actually there are human beings on the end of this and this has a very real impact […] I think as soon as we begin to realise that, we start to understand how fraud mistakes are made.”
Closing Thoughts on Payments
The mood of the webinar was very interesting. There was plenty of optimism, looking forward to the year ahead, expressed by the panelists. Alongside that, however, the talk was peppered with doses of the realities faced by small businesses in the UK.
Gavin Maclean decided to finish his contribution to the discussion on the positive side of things. Looking forward to the year ahead, he was of the opinion that “there is cause for optimism here in the UK. I think we have got a great track record of cross industry collaboration to deliver things that can make a positive difference for businesses. We have progressive regulators. We have that platform to innovate from […] I think here in the UK we are as well placed as any developed economy to use our payments infrastructure and payment systems to help us trade our way out of this crisis.