With Interest Rates Up, SMBs are Turning to Banks for Innovative Solutions

By Keith Riddle, CEO of Americas at BankiFi

Rising inflation and the Federal Reserve’s efforts to curb it by raising interest rates have dominated this year’s economic news. Since February, the Fed has raised benchmark interest rates to 3%-3.25%, the highest it has been in over a decade. In September of this year, the Fed raised rates by another 75 basis points, and experts expect rates to only go up again before the end of the year. Individuals and institutions are bracing for the consequences as money becomes tighter than ever. A high-rate environment is bad news for many, but small and medium businesses (SMBs) are especially vulnerable.

Small and medium businesses make up an overwhelming majority of the American economy. Of the roughly 33 million businesses in the United States, 99.9% of them are small businesses. However, rising interest rates have cast every one of them into precarity. The changing economic conditions pose a threat to millions of businesses across the country. According to PYMNTS.com, 49% of payments issued by small businesses become overdue. As small businesses rarely have the resources to chase after overdue payments , these problems will only compound while rates rise. Small businesses also need instant access to their hard-earned money. As money becomes tighter and tighter, SMBs cannot afford to wait the usual days or weeks it takes for most banks to process their invoices.

Given the current economic conditions, SMBs especially need solutions that allow for payments from anywhere and accelerated access to their funds. Larger companies either have the sophisticated technology to manage their payments challenges, or they have to capital to offset any inefficiencies. SMBs do not have access to cutting-edge technology nor the available funds to alleviate these problems.

Things may seem dire for SMBs, but recent innovations have emerged that could be a lifeline for SMBs across the U.S. New technology allows SMBs to accept and make payments from anywhere quickly and easily, connect their financial institution accounts and forecast their cashflow position. In extraordinary times like these, small businesses need state-of-the-art technology to keep them above water.

Embedded banking levels the playing field between the biggest and smallest companies in any industry. Through an embedded banking model, financial institutions can offer their small business customers a comprehensive suite of digital solutions designed specifically for SMBs. Instead of small businesses seeking out myriad solutions from a dozen different third-party vendors, SMBs can go to their bank for all their financial technology needs. With an embedded banking model and open platform, financial institutions can enable financial workflows for SMBs, such as flexible invoicing options, expedited collection of payments, automated data exchange with the accounting platform and a holistic view of their bank relationships.

Embedded banking is a great opportunity for SMBs, but why should banks offer embedded services? Why should financial institutions bother offering financial technology when that is not something that banks have traditionally done? Aside from the high demand for technology, banks can leverage an embedded banking model to strengthen their relationships with their small business customers. With embedded banking, banks work closely to become the financial advisor for their small business customers, creating trust and more opportunities to collaborate. An embedded banking model allows for banks to offer custom branded solutions that are specific to the bank’s needs and their customers’ needs.

The collaborative nature of embedded banking strengthens not only the relationships between banks and SMBs but the bank offerings themselves. When banks and their small businesses work so closely, banks can use the data to package a suite of services for SMB clients . For example, banks can utilize data associated with accounts receivable, payable activities and connected bank accounts to deliver tailored lending offerings for SMBs.

The dramatic rise in inflation and the accompanying rise in interest rates cast much of the economy in doubt, and small businesses are particularly prone to the problems deepened by inflation. Small businesses are in desperate need of technology that can alleviate the worst problems facing SMBs, and banks are now perfectly situated to provide them. An embedded banking model offers banks the chance to deliver top-of-the-line financial technology along with many other benefits. Until very recently, fintechs have had an almost unmatched ability to provide the most innovative technology, and they still control much of the market. Now, however, banks are positioned to supplant fintechs as the primary financial partner for millions of small businesses. Embedded banking is a revolutionary new model for providing financial technology, which benefits both banks and small businesses, and now is the perfect time for banks to implement it.