By Kiran Shetty
SMEs are the backbone of the Indian economy and particularly so during times of adversity and global economic shocks. According to Draft National Policy for Micro, Small and Medium Enterprises in India, 28% of country’s GDP and 40% of exports is contributed by these businesses. In India’s quest to become a USD 5 trillion economy by 2025, SMEs are expected to play a significant role and increase their share in exports to 60%. As these small businesses expand their presence globally, it is essential that the global financial ecosystem supports their needs and requirements for low-value transactions, which currently presents a number of challenges. For SMEs to overcome these challenges, it is imperative to have access to a low-value payment system that is quick, predictable, and transparent.
Challenges SMEs face in cross-border low-value payments
Traditionally, cross-border low-value payments have experienced various challenges. Among these is the significant issue of high processing fees and volatility in currency rates, which particularly affects SMEs that make small payments to their vendors and customers regularly. In emerging markets such as India, this is an even bigger issue for SMEs due to the use of intermediary currencies to process transactions. With digital payment options picking up pace among small merchants and kirana shop owners across India, it is important that banks have quick, transparent, and cost-effective options to address challenges of low-value payments.
With speed and predictability comes the security aspect. With payments increasingly being processed digitally, the chances of being exposed to cybersecurity risks such as online fraud, information theft, and malware or virus attacks are also increasing. In the context of cross-border payments, whether high or low-value, cybersecurity is a key challenge.
Finally, cross-border transactions are paperwork heavy, requiring longer processing times than domestic transactions, and low predictability can make it difficult for SMEs to track their payments. This leads to SMEs having little visibility of their cash flows.
Urgent need for a solution with infinite possibilities
SMEs stand to benefit the most from simplification of low-value cross-border payments, helping them to focus on building the business and fulfilling customer needs. Therefore, it is essential to empower banks with a transformative service that enables SMEs and consumers to send low-value cross-border payments directly from their bank accounts simultaneously addressing the pain points of SMEs while doing such transactions.
Services such as SWIFT Go allows SMEs to make payments faster as payments pre-validation reduces delays and potential risks of errors. These solutions must have features such as pre-validation to eliminate errors such as incorrect account information, by verifying key information on a real-time basis, enabling banks to check crucial details including beneficiary account information or payment instructions data, among others.
Banks also need greater visibility on the time a payment will take for processing, the fees to be charged and the FX rates, allowing their customers to manage their cash flows better and track payments in real-time. A single payment format that increases end-to-end transaction processing coupled with competitive processing fees driven through secure networks globally is the future of low-value cross-border payments for SMEs.
As India looks to position itself as a global hub of innovation and manufacturing, seamless low-value remittances especially for SMEs are the need of the hour. With small businesses playing a catalytic role in economic development, access to solutions that enable low-value payments must be a priority.
(The author is CEO & Regional Head, India & South Asia, SWIFT. Views are personal.)