A new report by Neo, a provider of FX and payments services, reveals that SMEs continue to rely heavily on traditional banks for cross-border payments, leading to challenges in terms of cost and speed.

The report, titled ‘Growing pains: Addressing Escalating Challenges in Cross-Border Payments for SMEs,’ highlights the failure of traditional banking partners in meeting the specific needs of SMEs when it comes to cross-border transactions.

According to the report, a significant majority (78%) of SMEs still depend on traditional banks for their cross-border payments. The main pain points identified by these SMEs include unfair pricing, with more than half (55%) reporting difficulties in this area.

Other challenges include the speed of execution (45%) and transaction reporting (42%). On average, it takes 2.81 days for funds to appear on suppliers’ bank statements, with 72% of SMEs experiencing a waiting period of 2-5 days.

Managing foreign exchange (FX) follows a similar trend, with over four-fifths (83%) of SMEs relying on traditional banks for this purpose. Unfair pricing (48%), speed of execution (45%), and reporting transactions (34%) are the main pain points faced by SMEs in this aspect.

Despite the existing challenges, the report highlights that SMEs are exploring new alternatives to address these issues. 

A significant majority (92%) of SMEs have considered virtual account solutions, and 65% are using non-banking payment solutions like payment service providers (PSPs), money services businesses (MSBs), and electronic money institutions (EMIs).

Other notable findings from the report include:

1. Diversifying bank partners: 75% of SMEs are considering diversifying their bank pool in the wake of the banking crisis, with 6% having already done so.

2. Fund safeguarding measures: 50% of SMEs always inquire about the name and/or credit rating of the safeguarding partner, while 47% do so occasionally.

3. Importance of FX: 72% of SMEs consider FX a critical matter this year, while 25% see it as relatively important.

4. Dealing with currency volatility: 95% of SMEs take the threat of negative currency impacts seriously and have an FX risk management policy, with 84% having an in-house FX expert.

5. Other cross-border payment pain points: SMEs also face challenges with a lack of automation (29%), reconciliation of flows for receivers (27%), and a lack of support from experts (25%).

The report highlights the continuing reliance of SMEs on traditional banks for cross-border payments, which leads to various challenges. However, SMEs are actively exploring alternative solutions to tackle these issues and improve their cross-border payment processes.