How our £1m funding will help us better serve underserved SMEs

Posted on the 22nd July 2015 by Hamish Anderson in Founders' blog

International payment services

Today we announced that we’ve secured £1m in investment from a group of financiers, entrepreneurs and technologists. The consortium includes former Towergate CEO and stakeholder in Funding Circle, Andy Homer, and Classic FM founder Sir Peter Michael.

Backing from such experienced private and institutional investors is a testament to the potential of Money Mover and signals the start of a new era in the company’s growth. The investment is critical if we’re truly to address the challenges that face small to medium sized businesses (SMEs) in the UK and beyond.

Rather than simply talk about the investment, I’d like to frame our future plans in terms of the issues that SMEs are facing.

Funding vs. international expansion headache

The economic climate has put a spotlight on how preoccupied the media and politicians are with providing funding to SMEs. Throughout the economic crisis and even today, when things are more positive, when SMEs and finance are discussed the conversation inevitably focuses on access to cash. The fact of the matter is that there isn’t the pressing need there once was. According to the British Bankers Association, SME cash holdings now exceed borrowing by more than £54 billion.

The reality is that SMEs need support and tools rather than just loans from financial service providers. International expansion in particular is a massive challenge for businesses. Research from Oxford Economics across 21 markets reveals that SMEs expect international revenues to grow from 40% to 66% in the next three years, while those doing business in at least six countries will jump 129%. Spurred on by this expansion, the global SME FX transfer market is growing 7.7% per annum.

The problem is that the majority of SMEs lack the knowledge and skills internally to capitalise on opportunities and mitigate the risks involved in internationalisation.

For example, with the strength of Sterling, if UK businesses are sourcing materials and services from the continent, then the cost is likely to have fallen. This provides an opportunity to hedge by buying more now at a lower price. Another alternative is to use a financial product that allows the rate to be locked in for buying or selling currencies in the future.

When it comes to supporting international expansion, traditional financial service providers, and even the new fintech players, aren’t providing the service that SMEs deserve.

A tax on growth: too expensive, too difficult

It’s a hackneyed story to some, but worth revisiting: most SMEs still waste money by using banks to provide international payment services and currency exchange.

SMEs come in all shapes and sizes and are hard for banks to classify. They don’t qualify for corporate FX services, which means they tend to get treated like retail and suffer poor service and high costs as a result. The hit to SMEs making international payments comes through substantial exchange rate spreads (up to 3% or more) that they pay each time they exchange one currency for another.

When dealing with fine margins, these fees hamstring international growth, and are only accepted because it is the status quo. Despite a lack of awareness among the SME community, there are alternatives to the big high street banks. These are the P2P players that offer a matching service to reduce the cost of international payments. They work by matching a foreign buyer with a seller, and agreeing a change of ownership of the funds via segregated accounts rather than remitting the funds across border. No currency ever leaves the country, it is merely exchanged between users.

Sound good? Well it is, but only for consumers. These types of services simply aren’t fit for businesses because of two reasons tied to the fundamentals of P2P.

  1. Price – Because the price needs to be matched by a counterparty the rate is not guaranteed at time of execution
  2. Speed – For the same reason, there is a lack of certainty over the payment settlement date and time

SMEs lack transparency over the rate, speed and the status of their international payments regardless of who they go to. This isn’t a basis for sound financial planning.

Serving the underserved

Most SMEs have accepted a 3% tax on their business. And even if they can find better rates, this is offset by service issues that make management difficult.

And we haven’t even got into ease of access and integration. Is it possible for an accountant or part-time FD to log-in to the business account and manage payments? Is there a full audit trail? Can detailed transaction details be exported into other applications and confirmations downloaded?

To date Money Mover has been able to offer SMEs better rates than the banks, a better service than consumer-oriented fintech players and better transparency than everyone. Now, with the funding, we hope to address issues around integration and awareness.

We plan to offer forward currency sales and purchases to complement the existing spot service. This is because our customers tell us that they want the certainty of locking-in rates now for known future payments and receivables. Alongside an improved user interface and dashboard that provides SME-focused tools, reports and functionality that support existing processes/workflows, we plan to invest further to make it easy to integrate with other financial applications. This way we can be a real partner to SMEs, by helping them to analyse, manage and report rather than just transact. We are also able to invest in marketing to get the word to SMEs that there is a superior service out there.

Too many businesses continue to use banks because of inertia, because they don’t know there is a better option. It’s time that changed.

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