Europe-wide research commissioned by innovative financial infrastructure provider Banking Circle has found that nearly two thirds (64.6%) of online merchants have needed extra finance in the past two years (excluding borrowing due to the current COVID-19 crisis). Nearly a quarter (23%) needed the additional funding to cover payroll, and a further 26.5% to cover regular business costs.Whilst needing to access extra funds is a fact of life for many businesses, the Banking Circle research highlights the serious gap in how easily and quickly funding can be accessed – which will be all the more crucial in the current climate.

Just under a quarter of respondents had to wait between three and four weeks to receive the cash they needed to cover essential costs, yet 26.4% felt that without access to new cash they would be forced to let employees go. And almost a quarter (24.4%) believe their business would ultimately fail if they were unable to access new finance.

With a whole new set of pressures on businesses of all sizes, but small businesses in particular, Banking Circle’s latest white paper, ‘Mind the Gap: How payments providers can fill a banking gap for online merchants’ highlights the continued issue of financial exclusion for SMEs – and the opportunities for payments providers.  These organisations are already connected to online merchants – and can play a crucial role in providing wider banking services, as well as access to funding.

Key findings:

Cross border banking is a challenge

• Across EMEA an average of 19.2% of online merchants have separate banking relationships in every country in which they operate – adding to their costs and resources to manage
  • 17.2% of UK merchants have separate banking relationships in every country in which their business trades
  • 44% of UK merchants work with just one bank for all the countries in which the business trades
  • 26.2% of businesses in the Nordics are the most likely to work with separate banks in each jurisdiction
  • 13.9% of French merchants work with multiple banks
  • 20.3% of Netherlands firms work with multiple banks

Banking services used by online merchants

• Around half of online merchants surveyed said they use short-term loans (47.8%), overdrafts (49.1%), and finance agreements for specific purposes (48.8%)
• 43.2% access settlement accounts for cross border payments (43.2%) from their main bank
• 35% use their bank for foreign exchange (FX) services (35%)
• German merchants are least likely to access solutions to help with cross border trade, with the lowest

proportion of all respondents accessing settlement accounts (38.8%) and FX (16.8%)

Accessing finance – how long does it take?

• Online merchants reported that accessing business finance had taken them as much as 6 months:
  • 18.8% said it took 1-2 weeks
  • 24.6% - 3-4 weeks
  • 21.7% - 1-2 months
  • 16% - 3-4 months
  • 6% - 5-6 months

The Opportunities for FinTechs and Payments businesses

• 87.3% feel their business is well served by their current banking partners; German merchants are the least satisfied at 82.9%
• 42.6% of the dissatisfied businesses felt their business is not a priority for their bank, and 41.5% gave high fees as a reason
• Approximately one in fourrespondents dissatisfied with their bank gave each of thefollowing reasons for theirdissatisfaction:
  • poor quality and inconsistentservice (28.7%)
  • slow response times (28.7%)
  • poor FX rates (24.5%)

Commenting on the findings of the study, Anders la Cour, Co-founder and Chief Executive Officer of Banking Circle said: “The world of digital commerce is a rapidly growing sector; but it is also a sectorwhere entrants face multiple barriers to operate because established financial institutions have a fear of the unknown.

“Opening a bank account – fundamental for most enterprises – can feel like taking an exam. And access to short-term funding, whether to fill a cashflow gap or to underpin growth plans, can involve multiple hurdles often just too steep to get over. However, payments providers already supporting the online merchant space can deliver a genuine added value by providing their merchant customers with banking services including access to funding. And in the current climate that support is going to be more valued than ever – indeed, for payments providers that demonstrate a real understanding of SME needs there could be a significant long-term gain.”

Anders continued: “Banking Circle has always been committed to improving financial inclusion for smaller businesses, and this study helps us and the wider industry to identify – and therefore help to fill –gaps in the current offering.”

The full white paper,‘Mind the Gap: How payments providers can fill a banking gap for online merchants’, is available to download for free at https://www.bankingcircle.com/whitepapers/how-payments-providers-fill-finance-gap-online-merchants.

The research was conducted by Censuswide between 30th March 2020 and 7th April 2020, amongst 1,514 respondents from merchants that trade online and respondents who work in the finance department in companies that sell digitally. The SME merchants surveyed were based in the UK, Germany, France, the Netherlands and the Nordics.