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Understanding the Stimulus Package

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Understanding the Stimulus Package

By Paul Miller, CPA, Miller & Co, LLP

As global economies continue to plummet, the U.S. stimulus package is expected to boost spending and shore up at least a portion of the national economy. The officially titled “economic impact payments” are part of a $2 trillion stimulus package created by the government at the end of March in response to the global pandemic and its economic ramifications.

The stimulus package was designed to ease the economic burden placed on American families and small businesses during the crisis. And while the $1,200 payments made to most U.S. taxpayers may help ease the burden of unpaid bills, the stimulus package will have little effect on boosting consumer spending, easing the stress on global economies or setting the banking industry on a healthy track.

Now vs. Then

Compared to stimulus packages aimed at getting consumers to spend more and move the country out of a recession, the 2020 stimulus package barely puts most Americans on a track to fiscal health. The one-time influx of cash may cover some Americans’ mounting unpaid bills and increased grocery costs. And those who don’t need to spend it right away may stash it in savings to cover future losses.

The general economy is not expected to reap many benefits from this stimulus package, especially compared to past governmental recovery programs. For example, the American Recovery and Reinvestment Act (ARRA) of 2009 played a key role in ending the Great Recession. The ARRA followed the 2008 banking industry bailout. One big difference today is that the 2020 stimulus package is not nearly as complicated as the ARRA, which provided many levels of assistance to individuals and businesses.

Simplicity and Challenges of 2020 Stimulus Package

Everyone who filed taxes in 2018 or 2019, including Social Security recipients, has received or will receive automatic tax refund payments under the rules of the 2020 stimulus package. $1,200 for single and $2,400 for Married Filing Jointly(MFJ).  There are adjusted gross income limits, as Americans who is single and earned below $75,000 will receive the full benefit, its $150,000 for married filing jointly.  The stimulus is phased out for single individuals its $75k-98K and for MFJ its 150-198K. Measures have been put in place to allow Americans who didn’t file taxes to claim their payments. It’s called the Simple filer return with the IRS.

Unemployment benefits also receive a federal boost. Other accessible relief measures for American individuals are available in the form of:

  • No-penalty for early retirement account withdrawals up to 100k per individual.
  • Expansion of family leave benefits now a 12-week period.
  • Homeowner mortgage forbearance on loans generally banks are giving 3 months.
  • Renter eviction protections
  • Suspended student loan payments with no late fees

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provides the stimulus package for individuals and small businesses, isn’t as clear-cut for small businesses. In the $2 trillion stimulus package, small businesses have multiple options, causing confusion about which steps are the best to take for small business owners across all industry sectors.

Small Business Aid Decisions

Because the stimulus package options aren’t clear-cut or automatic for small business owners, it’s been recommended that they contact their accountant to help make the right decisions about applying for aid. The last thing a small business needs is to get strapped with loans that may be difficult to repay. Nor does any business want to incur undue tax burdens down the line.

Accountants who understand the nuances of their client companies will play a key role in deciphering the stimulus options for small business owners. By mid-April 2020, the $349 billion approved for small business relief had been totally allocated. The Payroll Protection Program loans were some of the first funds to dry up, and this program may or may not receive additional funding. Plus, the other programs aren’t rolling out as smoothly as businesses wished.

Banking Industry Roles and Obligations

The banking industry is processing the wave of applications for loans in the timeframe required by law. The available options for relief left in the CARES Act include:

  • Economic Injury Disaster Loans(EIDL) is a program provided through the Small Business Administration (SBA). It provides low-interest loans that come with a $10,000 advance that small business owners can get within three days, at least in theory. An EIDL advance may be processed as a grant that doesn’t have to be repaid. The loan and advance come with stipulations that funds be used for specific payments, such as:
    • Paying employees
    • Providing COVID-19 sick leave pay
    • Covering rent and mortgages
    • Paying for increases in supplies interrupted by the pandemic
    • Repaying other bills that accrued due to reduced income during the global health crisis
  • 7(a) Loan Program is run through SBA-approved lenders in the banking industry. These loans are geared toward small businesses with fewer than 500 employees. Some portion of the loan may even be eligible for forgiveness, but it also comes with caveats that the funding must be used solely for:
    • Payroll
    • Some health care costs
    • Utilities, rent and mortgages
    • Pension benefits
  • SBA Express Bridge Loans make up to $25,000 available to those small businesses that already have a relationship in place with an SBA Express lender. Fund disbursement can be relatively quick to provide immediate help as businesses weather the coronavirus pandemic. And the loan can be repaid with EIDL funds when they come through.

Who Qualifies for Stimulus Package Loans?

Non-profits, independent contractors, the self-employed, sole proprietors and partnerships are among those who qualify for assistance through the CARES Act. The 500-employee cap refers to everyone who works in the company, including part-timers and owners. Small business owners can’t compensate employees who make more than $100,000 a year, nor those who live outside the U.S. They also can’t use the funds for payroll taxes or income taxes.

Banking industry lenders qualify small business owners for a loan based on certain factors that include:

  • The business was open and in operation before February 15, 2020
  • The business owner doesn’t have any currently active loans being used for the same costs

Small business owners can borrow up to 2.5 times the average amount of their monthly payroll, up to $10 million. While interest begins accruing the moment the loan is dispersed, a five-year repayment schedule doesn’t begin until 2021. Interest rates are based on a one-percent rate over the cap of a selected index, such as the 10-Year Treasury or the Prime.

The 2020 stimulus package doesn’t leave out big business either. The airline industries are being offered billions in loans. There are even some grants available for carriers that don’t cut worker’s pay or furlough any employees before September 30, 2020. Funds also are set aside for corporate loans that must be repaid within five years.

How to Successfully Manage Stimulus Package Funds

For many individuals and small business owners, paying the rent and feeding their families is priority one. They don’t need advice or guidance about how to make the money last — in many cases, it just won’t. But anyone with questions should seek assistance to decide whether to apply for a loan, an advance or an early withdrawal.

In many cases, it makes sense to take a beat and consider the consequences of a rush for funding. While a government loan allows a small business owner to pay the staff, will the payback put the company out of business for good? Similarly, taking an early withdrawal from a retirement account may provide some immediate comfort, but will the funds exist for that same comfort level when retirement finally arrives?

The CARES Act stimulus package certainly helps countless individuals and business owners meet important obligations so that they can be open after the dust clears. Global economies eventually will recover, and the banking industry will still be there to make loans. Talk to a qualified accountant before adding additional burdens to an already stretched economic condition. “You can pay me now or you can pay me later” seems like an apt saying at this point. Businesses may need cash now; just make sure the added stress is worth it.

Finance

Black Friday payment data reveals rapid growth of ‘pay later’ methods like Klarna

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Black Friday payment data reveals rapid growth of ‘pay later’ methods like Klarna 1

Payment processor Mollie reveals the most popular payment methods for Black Friday

Mollie, one of the fastest-growing payment service providers, has revealed insights into the most popular payment methods used this Black Friday. The data, which provides a year-on-year comparison of 2019, shows that payment methods allowing customers to pay flexibly – like ‘pay later’ service Klarna – has more than doubled in 2020. The study spans 101,000 merchants across Europe, primarily from Germany, U.K., France, the Netherlands and Belgium.

Black Friday trends: 

  • In 2019, Mollie saw a 36% increase in the overall number of transactions on Black Friday versus the previous year. In 2020, this shot up to a growth of 56% on the 2019 numbers, representing a difference of 20%.
  • And this year, even in the four days leading up to Black Friday, there was a 58% YoY growth in transactions.
  • Use of ‘buy now, pay later’ services on Black Friday (such as Klarna or ClearPay) has more than doubled from 1% of all payments in 2019 to almost 2.5% in 2020.
  • Use of mobile payment methods on Black Friday is consistent on the previous year – 0.20% in 2019 to 0.25% in 2020.

“There is a lot of pressure on consumers’ wallets at the moment, which is making people look to payment methods that offer them financial security,” said Ken Serdons, Chief Commercial Officer at Mollie. “It makes sense that fintechs like Klarna, who have performed phenomenally well this year, have been so popular this Black Friday. The increase is in-line with this growing trend towards more flexibility in how consumers pay for goods.”

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Finance

Beyond Transactions: The Payment Revolution

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Beyond Transactions: The Payment Revolution 2

By Marwan Forzley, CEO of Veem 

The uninterrupted disruption brought on by the pandemic accelerated the need for robust, digital-first tools created to support remote teams and accelerate online commerce.

As offices across the US moved to work from home for indefinite periods, specialized back office departments handling sensitive information have had to go a layer deeper to find tailored solutions that support the transition of their in-person workflow. For finance teams, payment approvals, issuance, and general management became a challenge overnight. Particularly for those who — even in 2020 — continued to send and receive paper checks through the mail.

For years and even to this day, millions of small business owners around the world have relied on slow and confusing bank processes to manage their business finances. Every day, they spend valuable time using old, complex and expensive platforms to transact with domestic and international vendors — never knowing where their payment is or even when it arrives at its destination.

With ongoing economic and logistical uncertainty looming as we move into 2021, this old norm should not be expected for much longer. This year has seen small business owners wear more hats than ever before, and has influenced a mass adoption of online financial applications that offer heightened security, save more time, and provide more value as budgets tightened.

A study conducted by Mastercard earlier this year saw online business-to-business payments skyrocket in popularity with more than half (57%) of small business owners across North America turning to digital services since the start of the pandemic to improve cash flow and modernize their payment processes.

If this study is of any indication, the days of making an appointment with a banker or sending a wire transfer through an outdated web portal have passed. And the time for the payment revolution is here.

Putting the user in the driver’s seat

Major world events have always acted as a catalyst for innovation and change. As of a result of the growing pains we experienced this year, in 2021 businesses can finally say goodbye to huge transaction fees and bank-imposed gatekeeping when it comes to managing their financial processes.

The financial technology firms, in partnership card and local bank networks and sometimes even each other, have been building and iterating on products over the past decade that were created to work flawlessly from a desktop or smartphone.

For the first time, small businesses have access to needed, user-friendly financial tools packaged to make their lives easier. No longer reserved for major enterprises, those previously underserved by traditional banks can sign up for applications that consolidate billing, payments, working capital and more to one central dashboard.

With the owner in the driver’s seat, they can better communicate with vendors and customers and reallocate their time previously spent manually sending, receiving and reconciling payments toward growing their business — without ever stepping foot out of their home.

Marwan Forzley

Marwan Forzley

Genuinely seamless and automatic integrations with complimentary functions aligned to core financial activities mark a fundamental change in how businesses will choose to operate moving forward. Not only should experiences be integrated, but the entire lifecycle of the transaction should be digital.

Consider a freelance contractor that uses a time tracking and invoicing software to invoice a client. Through an integration between the time tracking tool and Veem (a complete online business payment tool) the client receives and captures the invoice within their Veem payment dashboard. Because Veem and Quickbooks are integrated partners, as soon as the invoice is received, a bill is automatically created, marked as paid, and reconciled on the client’s accounting software as soon as the funds are issued.

In this flow, the contractor only needs to send an invoice, and the client only has to approve the payment for everything else to move. Thoughtful integrations like these empower businesses to log-in to one application, but benefit from several, ultimately eliminating inefficiencies.

Relentless transparency

Understanding that old habits die hard, it’s expected that businesses of any size have questions when it comes to moving payments from a bank to an online provider.

Answering these questions with unprecedented product value and relentless transparency is the best way forward to bring more businesses onboard in 2021.

This means providing up front pricing, tracking, choice and flexibility to users. Before, during and after the pandemic, cash flow management remains the most critical part of running a small business. Digital payment providers enable the entrepreneur to have unparalleled insight, visibility, and control over their cash flow.

Through non-bank payment options, businesses can secure their information over a secure data network, watch their money move from origin to destination, and choose the speed at which they would like funds to move. By these tools working in harmony, the user can remove friction and spend more time focused on their business.

Separating the signal from the noise

2020 is a year that changed everything for the global small business community. In a report by Veem issued at the start of the pandemic, an overwhelming 80% of businesses shared that they anticipated COVID-19 to impact their business over the next 12-16 months. Problems surfaced that many didn’t even realize they had. And in finding those problems, businesses turned to technology to support them.

As enabling technology, it’s our job to listen and bring clarity and solutions to those contributing to and growing our local and global economies despite the hurdles and challenges they’ve faced.

Right now, small businesses deserve more. More access, more choice and more credit. In the road ahead we expect online payments and bundled user friendly financial services to play a pivotal role in the recovery of small businesses. The payment revolution will see the continuation of important and meaningful products that value the users time and enable businesses to launch, grow, and scale regardless of what’s to come in 2021.

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Finance

The UK’s hidden payments crisis: why businesses should rethink their payments strategy

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The UK’s hidden payments crisis: why businesses should rethink their payments strategy 3

By Edwin Abl, Chief Marketing Officer at Modulr.

As the economic conditions imposed by the Coronavirus endure, businesses are facing a dilemma about how to reduce operational costs while meeting customer needs in as economical a way as possible. And all without compromising on their quality of service.

A recent survey of 200 payments decision makers across the UK, revealed there are hidden costs of payment processing which will have an exponentially greater impact on wider businesses if left untreated. It found, UK businesses are spending an average of £1.5m a year in costs attached to payments – money they simply cannot afford to lose to inefficient processes in these uncertain times.

Businesses need to plug any holes in their boat to avoid sinking. And for many this includes the examination and recalibration of their payments strategy.

The research reveals that the payments process now represents a huge 12% of a business’s total operational expenditure. With two-thirds (64%) of all businesses expecting the cost of payment processing to increase over the next two years.

Two thirds (67%) of payments decision makers surveyed believe the way they process, and service payments has had a direct impact on their customer experience. In fact, 62% of respondents believe the hidden costs of poor payments outweigh the hard costs. This indicates that a poor payments strategy is no longer something business leaders can ignore, as it now has a far greater and unseen impact on wider business mechanics.

The top three hidden costs attached to inefficient payment processes were ‘impact on customer experience/satisfaction’ (38%), ‘influence on relationships with other teams and departments (35%) and ‘impact on competitor differentiation’ (31%).

These findings suggest there is widespread consensus that getting payment operations right, directly creates performance boosts elsewhere in the business. When asked to estimate, as a percentage, the business performance boost received if hidden payment inefficiencies were resolved, the average margin for improvement was +14%, with traditional banking the sector most likely (31%) to predict a performance gain greater than +15%.

The 5 key steps UK businesses can take to drive payment efficiencies

There are five key areas payments decision makers and tech leaders should be looking to change, so that they can drive end-to-end payment process efficiencies:

1 – Locate hidden payment process inefficiencies

Visibility is a key issue. Respondents across large (46%) and small businesses (47%) say they have very clear metrics directly related to payment process costs. Only 8% say that they don’t understand the costs involved. Yet, businesses know they could do better with improved visibility of costs. Both large and smaller companies cite ‘lack of visibility for operational costs’ as the top challenge when it comes to achieving strategic goals around payment process and money services provision.

Digital banking companies, including lenders and FinTechs, identified ‘lack of visibility for operational cost’ as a challenge when it comes to increasing payment services revenue (37%). This is in comparison with all respondents mentioning other issues such as lack of skills (25%) and constrained resources (25%) as secondary and tertiary challenges respectively.

For many businesses, developing a cost model for current and projected payment process costs, both hard and hidden, is a top priority.

2 – Make payments key to stakeholder experience management

Customer, departmental and even supply chain partner experiences are increasingly intertwined. There is no doubt that customer experience is a top priority for payment services strategy. But enhancing the broader stakeholder experience is a close second, and certainly complements the former.

Employee experience affects customer experience. So, payment services innovation must extend beyond customer touchpoints. Happy employees who feel they are working with effective and efficient payments systems will be best placed to enhance the customer experience. And, employees in commercial roles who have bought into the benefits of efficient payments will naturally want to extoll those benefits to customers.

Edwin Abl

Edwin Abl

Companies with a sophisticated and integrated supply chain are likely to be the frontrunners in implementing the integrated payment services that benefit all stakeholders, due to their historic experience. As customer experience management evolves into a broader discipline of stakeholder experience management, including employees and supply chain partners, it will become more crucial than ever to include payment services experience

3 – Integrate and automate to support payment innovation

Payment innovation is driving a culture change, connecting previously siloed functions such as IT and finance. There is increasing integration of systems from customer relationship management (CRM) and enterprise resource planning (ERP), into accounts and payments. The research tells us that payment processes are impacting nearly every department, affecting areas including customer experience, brand, leadership, business agility and ultimately, revenue. Integration enables new business models for paying suppliers and customers.

Automation is key to driving efficiency, replacing manual error-prone and time-consuming processes with real-time and responsive, digital ones. This is particularly the case when it comes to operational and payment processes.

Indeed, 52% of large companies say that team hours spent on payment processes was their biggest hard cost attached to payments, compared with 26% of smaller companies who share that view. This suggests that automation could contribute more to cutting the cost of payment processes in large companies.

A host of payments-as-a-service providers (including Modulr) are supporting customers to do just this by enabling them to stream a whole unified product ecosystem of payments functionality directly into their own software.

4 – Bring business leaders together

Payments innovation is driving systems integration and creating a more collaborative stakeholder ecosystem. As all the C-level roles become increasingly focused on the customer experience, the finance remit now includes overall business operations and its associated risks and opportunities. The role is evolving beyond just accounting, tax liability and funding. Therefore, closer collaboration between senior leaders is key to driving efficiencies and enhancing customer experience.

5 – Innovate by adding finance and payments to vertical services

Companies with a vertical focus are well placed to innovate by offering new payment services. In many vertical sectors, especially employment services, software vendors are increasingly embedding financial services facilities, such as payments, into their technology platforms. Employment services SaaS providers, across payroll, accounting, bookkeeping and more are offering financial services to existing and new customers within their specific ecosystem.

This means they can develop hyper relevant, convenient and delightful financial products and services for their end users through highly flexible, ‘plumbed in’ payments. This creates an ecosystem of stickier products while boosting the lifetime value of each end user.

Moving forward – engaging technology to drive efficiencies

If the onset of the Coronavirus crisis has taught us anything, it is that there are many advantages to investing in technology and having a digital infrastructure as responsive as your customer-facing experience.

However, whilst digital technologies enable companies to provide customer service in new ways during lockdown. These same businesses are failing to transform their digital strategies, with the biggest priority still being cost reduction (41%).

By not shedding legacy technology and shoring up operational efficiency, UK businesses are following an increasingly risky strategy. And one which will have an exponentially greater impact on the wider business if left untreated. Particularly when this widespread failure to act concerns the customer experiences that sit at the very heart of a proposition – the payments.

To find out how you can drive payment efficiencies into 2021 and beyond, download the full report here for all the insight you need.

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