Banks’ SMB Payments Problems Mean Big Opportunity for Blockchain Tech

When it comes to cryptocurrency payments, a lot of attention is placed on consumers paying merchants, but business-to-business (B2B) payments are an area where crypto has the potential to make a big impact.

Cross-border payments are a big part of this, but they’re not the only consideration. There are areas in which traditional financial institutions (FIs) see their existing digital payments solutions falling short in terms of their ability to effectively address the frictions their B2B payments clients face.

While 66% of FIs say the ability to offer clients B2B digital payments solutions is “very” or “extremely” important, according to PYMNTS’ “The New User Experience: Tracking the Consumerization of B2B Payments” report, just 30% say the solutions they offer solutions are “very” or “extremely” effective in overcoming those frictions.

Read the report: The New User Experience: Tracking the Consumerization of B2B Payments

One of the key areas where they are falling short, the study found, is catering to the needs of small- to medium-sized businesses (SMBs).

When it comes to middle-market companies, 83% of the FIs surveyed said digital payments solutions were “very” or “extremely” important to addressing the frictions clients deal with in their B2B payments.

Yet, just 42% of the FIs surveyed said that their digital payments solutions were “very” or “extremely” effective in addressing those frictions, according to The New User Experience, which launched earlier this year.

The numbers were worse for small businesses, with 65% calling digital payments solutions “very” or “extremely” important. However, little more than one third — 23% — of the FIs felt their solutions were “very” or “extremely” effective.

Beyond that, a far larger 37% admitted that their digital payments solutions we only “slightly” or “not at all” effective in addressing small clients’ problems. Large enterprise service providers were a lot more confident, with 75% rating their digital payments solutions the most effective.

Cross-Border Complacence

Given the attention that’s been piled on the need to improve the speed and cost of cross-border payments in particular, a surprising 80% said their digital payments solutions were “very” or “extremely” effective in addressing cross-border payments’ problems, the New User Experience report found.

This is an issue so severe that it led the Bank for International Settlements to issue a whitepaper in May, in which the authors said “cross-border payments has enough challenges that it requires a ‘comprehensive approach.’”

Citing “high costs, low speed, limited access, and insufficient transparency,” the authors recommended redesigning the entire regulatory system to focus on distributed-ledger technology (DLT), the technology underpinning blockchain.

See also: BIS: Cross-Border Crypto Payments Need New Regulatory Framework

In stumping for a central bank digital currency (CBDC), the European Central Bank argued that a digital euro could be the “Holy Grail” for cross-border payments, offering a solution that is “immediate, cheap, universal in terms of reach, and settled in a secure settlement medium.”

Which leads to two points: First, blockchain- or DLT-based CBDCs are at best four or five years off in the European Union, which leaves ample time for crypto payments providers to present private solutions based on roughly the same technology.

Second, anything that needs a “Holy Grail” is not working very well.

Learn more: ECB: CBDC Could Be ‘Holy Grail’ for Cross-Border Payments

Solutions Welcome

The New User Experience report did find that FIs believe their B2B clients’ willingness to adopt new technologies to resolve these issues decreases with the size of the enterprise, with 88% of large firms willing.

That said, the 78% of middle-market firms and 63% of small businesses willing to consider new technologies like crypto-based B2B payments solutions is pretty substantial.

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