It’s no secret that companies of all sizes have been severely affected by the pandemic. SME’s worldwide-especially those with no or little digital presence-have been hit the worst.
The closing of physical shops has forced the digital acceleration of small to medium sized businesses and whilst for many this has opened up new revenue streams, selling online is not without its challenges.
Transaction fees are a significant financial burden on SMEs even during times of economic prosperity. In 2019, the British Retail Consortium found retailers spent £1.3bn on transaction fees with third parties, up £70m from 2017, eating into profit margins and quickly becoming a source of great frustration for SMEs.
So the recent news that card fees are to be increased has dealt another blow to the millions of already struggling SMEs in the UK. Credit and debit card processing fees are set to rise from 0.3 per cent to 1.5 per cent for those EU businesses collecting online payments on UK-issued cards. This move will only add to the cost of doing business with the UK and in turn, is likely to lead to price hikes for consumers.
As Leon Muis, CBO, Yolt Technology Services, explains a growing number of SME’s are now discovering an alternative way of taking payment which enables them to avoid losing precious income. PIS (Payment Initiation Services) offered through open banking is a simple and powerful way of cutting costs and boosting efficiency. In short, PIS allows businesses to initiate payments directly from a customer’s bank account – with optimal security – removing the need for a credit or debit card.
The great advantage of PIS is that it offers SMEs the chance to reduce their transaction processing fees by up to 90 per cent, remove settlement delays, and allow businesses and customers alike to make payments safely and efficiently.
Businesses can receive payment without the high fees associated with card transactions or mobile point of sale solutions. The average UK transaction fee for standard payments currently stands at 2 percent, so PIS could be a lifeline at a time where physical sales are dropping because of shop closures. It would also be a recovery springboard for SMEs emerging from the lockdown period.
Even before the news on card processing fees, settlement periods were already hurting many SMEs. Cashflow is king irrespective of business size and settlement delays on credit and debit cards, means no cash to purchase new stock or pay staff.
When customers have given their consent and authorised the use of open banking, PIS allows them to initiate payments directly from their bank accounts, without the need for a debit or credit card, making bank transfers a highly attractive and prudent alternative for day-to-day spending. Payment is rapid using the Faster Payments platform, usually just a matter of minutes between customer and business accounts.
PIS is a major asset for security. Credit card details are a frequent feature of data breaches and a key risk for businesses. Last year a well-known airline was fined £20 million under the GDPR for a security incident that exposed customers’ card numbers, expiry dates and CVV codes. Using PIS means that SMEs don’t collect any credit or debit card information for financial transactions. The customer is simply passed to their own bank website or app to authorise the payment – which means they benefit from their own bank’s security, including multi-factor authentication using fingerprints, facial scanning, and PIN numbers.
In short, PIS offers businesses a secure, rapid, lower-cost solution to taking payments. It benefits both customers and SMEs alike. It is the future of day-to-day financial transactions for millions.