![](https://thepaymentsassociation.org/wp-content/uploads/sites/7/2024/05/Payments-1-1024x320.png)
Share this post
As GDP growth slows globally, digital capabilities accelerate, and geopolitical stresses continue to rise, the payments industry can make real headway in addressing one of the least discussed but most critical economic headwinds facing every country globally: the SME challenge.
With an estimated $30 trillion daily value of account receivables outstanding worldwide, payment and settlement systems are increasingly the backbone of all economies. At a headline level, prevailing regulatory and bank obsession rests with big-ticket money flows, and it is easy to understand why. Wholesale payments are expected to represent 80% of a forecast $290 trillion in global cross-border payment volumes (Statista data) in 2030, virtually unchanged from 2023 flows of $190 trillion.
Dig a little deeper, however, and it quickly becomes clear that—for the payments industry—the real risks and opportunities from payment inefficiencies and delays, as well as the greatest scope to innovate, drive growth and efficiency, and promote financial inclusion, lie in a different layer altogether: the small—and medium-sized enterprise category (SMEs). As fast payment Systems burgeon globally, XB solutions in this critical space must begin to deliver.
SMEs punch above their weight
Within the B2B space, SMEs punch significantly above their weight when viewed through the lens of revenues rather than volumes. By way of example, the SME- and B2C (business to consumer) cross-border payments segments across Asia-Pac (including China) collectively generate a meagre 7% of total volume flows, but expressed as a percentage of revenues, this figure skyrockets to more than 40%.
From a social, environmental, and economic perspective, as well as from a cross-border payments perspective, SMEs have a disproportionately positive impact at a local community level and globally. This is starkly at odds with the lack of investment, recognition, and support they receive from policymakers and, crucially, the public and private sectors.
SMEs can drive change where it matters
OECD commentary confirms that SMEs—which employ anywhere between 60% and 70% of workers in most countries—drive greater economic inclusiveness globally, notably by promoting women’s participation as entrepreneurs and in the workforce.
This view is supported by World Bank Data showing that SMEs make up 90% of businesses globally, with ‘formal’ SMEs contributing up to 40% of GDP in emerging economies. SMEs are the lifeblood of those economies where most help and investment is needed and where most growth opportunities lie.
Empowering SMEs to access the cross-border payments nexus in a fit-for-purpose and user-friendly way is critical to driving progress and delivering much-needed finance and liquidity to developing nations.
SMEs face up to a $3 trillion late payment drag
The economic impact of delayed and failed payments can be hugely significant but is again often overlooked in the big-picture debate. A Bloomberg survey suggested that about 1 in 10 invoices are paid late, which, if correct, could imply a $3 trillion shortfall for the SME sector globally. That said, with little or no comparable information available globally about the average size of late payments, the true figure could be far lower or far higher.
Either way, it confirms that more information and better visibility on the state of the SME payments system is badly needed.
Similarly, LexisNexis estimated that the total cost of failed payments in 2020 fell just shy of $120 billion. Anecdotally, UK government figures show that its SMEs had £23.4 billion outstanding in late fees, with an average delay of 8.2 days in 2022. As a direct result of late payments, more than a third of UK SMEs have had to apply for credit to manage their cash flow.
The SME-payments challenge is not limited to developing and emerging markets but is, in fact, a significant roadblock across the Western world. The EU is a case in point: Only 40% of businesses are paid on time, which, according to EU data, causes a quarter of all SME bankruptcies.
A 2023 Business at OECD white paper rightly posited to the G20 that by supporting ‘trustworthy interoperable early payment platforms structured on safe principles and requirements’ and ‘facilitating efficient cross-border payments’, a “propeller” effect in job creation and economic growth could be created.
Chapter 3’s UK Spotlight section discusses at length challenges unique to the UK, including Brexit and the structural fallout from bank ring-fencing.