Ecommerce Merchants Need Faster Settlements to Bolster Cash Flow

By Nick Root Nick Root has been verified by Muck Rack's editorial team
Published on April 24, 2023

For ecommerce merchants catering to the modern consumer, convenience is everything. Customers want the purchasing process to be instantaneous and hassle-free. It’s up to ecommerce merchants to provide this. It was no surprise when, in a recent report, it was found that credit card purchases make up a fifth of all small business income streams, with PayPal not far behind at 16 percent. Yet, while the fintech sector offers several solutions to help merchants achieve this for the customer, no one considers how long it takes for the merchants themselves to see the profit from those sales.

In a recent report from Mastercard titled The Small Business Guide to Rapid Settlement, they found that:

  • Merchants often have to wait two days — or more — for funds from customer payments via PayPal and Apple Pay to hit their business bank accounts
  • A staggering 75.8 percent of small businesses say these slow settlements ‘noticeably’ disrupt their business operations
  • While a third say that slow settlements can disrupt their cash flow so much that they have to delay vendor payments.

The report also notes that other operational disruptions can come within a day of being unable to access funds from their sales income, which is greatly frustrating. This is not what cash-constrained merchants need right now, with rising inflation and a cost-of-living crisis. Every little bit helps, and the only ones capable of solving this problem are the Payment Service Providers (PSPs).

Faster Cash Flow to Fight Inflation 

Inflation is stubbornly on the rise and putting a lot of smaller businesses out of business. Sometimes this might just be from a lack of sales (which is always a shame to see), but most of the time, it comes down to a weak cash flow and high operating expenses eating into profits. Having adequate cash reserves and consistent cash flow is far from a given for ecommerce merchants, even during the best of times. In 2022, it was found that a mix of supply chain challenges, staff shortages, and rising prices all combined to create a tough operating landscape for merchants.

This volatility weakens working capital, impacting a merchant’s ability to manage these issues, drive business continuity, and maintain the business’s financial resilience. The solution to this is simple on paper: merchants need to receive the profit from their sales as soon as possible. This would provide many companies with more reliable cash flow to meet rising expenses. This is why shortening delays between customer payments and the settlement of funds in these businesses’ accounts should become an industry-wide effort.

Rapid Settlements Are in High Demand

So how can PSPs help businesses tackle the issue of delayed payments? One solution that merchants have been considering is a switch to rapid settlement services. Setting up efficient rapid settlement systems would better serve the needs of ecommerce merchants, regardless of size. PSPs just need to roll out solutions that are designed to give merchants quicker access to sales income, ideally within 30 minutes instead of several days.

Additional Mastercard research shows that 57 percent of small business owners are “highly interested” in switching to rapid settlement services. Many are even willing to pay extra fees to get their hands on their own hard-earned income sooner. So, the demand is there. In fact:

  • Fast access to funds is considered “very” or “extremely” important by 79.5 percent of digital native small businesses
  • While 76.7 percent of omnichannel small businesses see fast funds access as “very important”
  • And 51 percent of brick-and-mortar businesses see fast access to funds as important, likely because they are still receiving cash from in-person payments at stores

That last point is particularly interesting as it reminds us that, even with increases in digital currencies, cash remains among the top payment methods today. Cash does allow merchants to receive their profits instantly, so it has an advantage over digital currencies in that regard, but it is simply not an option for digital-only small businesses or ecommerce merchants operating across borders.

Digital businesses often receive payments in a much more fragmented way. Approximately 40 percent of small businesses accept at least eight payment methods — including digital wallets and PayPal. A majority receive at least 40 percent of revenue through online channels. In the ever-growing digital world, they should not be waiting so long for the money they are due.

Rapid Settlements Drive Revenue Forecasts

Utilizing rapid settlement services could drive more predictable cash flow in a business, specifically for those whose main revenue is generated online. This thought is backed up by the PYMNTS and Mastercard research, which shows 63 percent of firms that have used rapid settlement in the past year expect revenues to grow by at least 10 percent. That’s close to double the rate compared to firms sticking with current settlements.

For under-pressure merchants, quicker access to funds can provide a much-needed sense of financial control amid periods of economic volatility. Faster access to ecommerce sales income would allow merchants to keep on top of payments to suppliers and vendors. In turn, this would drive a better relationship with such suppliers and vendors, as merchants work with these external partners to navigate the impacts of supply chain issues and hiring problems.

What Can Payment Service Providers Do to Help

The PYMNTS and Mastercard data speak volumes, and it is clear there is growing interest — and need — for rapid settlements. Nearly three-quarters of firms are prepared to pay extra fees of approximately 1.5 percent to 2.2 percent of the payment amount to gain faster access to their cash. Given this demand, PSPs could adapt their product offerings to include some of the points below:

Integrating with merchant acquiring banks that offer same-day settlement: PSPs can consider offering rapid settlement services by integrating with merchant acquiring banks that offer same-day settlements. By doing so, PSPs can leverage the existing infrastructure and relationships of these banks to provide faster settlement times to their merchant clients. This solution can help PSPs reduce the costs and complexity of developing their own settlement systems while also providing a more reliable and efficient payment solution for merchants.

Offering card programs with a 1% cashback: PSPs can explore offering card programs with cashback rewards for merchants. These rewards can incentivize merchants to use the PSP’s payment services and can help them earn additional revenue on their spend. By offering a cashback reward of 1% or more, PSPs can create a more attractive and competitive offering that can help them win over new merchant clients and retain existing ones. Additionally, these rewards can help merchants manage their expenses and improve their cash flow by providing them with additional funds that they can use to reinvest in their business.

Offering working capital loans: PSPs can provide merchants with working capital loans to help them manage cash flow challenges caused by delayed payments. This solution can give merchants access to funds quickly, allowing them to pay their bills and invest in their businesses.

Embedding settlement or business accounts into their platform: If PSPs consider embedding settlement or business accounts into their offering, they could provide free business banking services to merchants. This solution would help merchants reduce their operational costs and improve their cash flow by providing them with a more affordable and efficient payment solution.

Offering multi-currency accounts: For merchants operating across borders, PSPs can offer multi-currency accounts that enable them to receive payments in various currencies and settle them in their preferred currency. This solution can help merchants avoid currency conversion fees and reduce delays in payment settlements.

By working together to tackle the problem of delayed payments, PSPs can then help merchants channel their energy into improving their business rather than being consumed by difficult conversations about their revenue forecasts and cash flow.

In order to grow and survive in the modern era, the payments industry needs to rise to meet the demand of merchants in the same way merchants do for consumers. It’s a give-and-take and one that should make everyone happy in the end.

By Nick Root Nick Root has been verified by Muck Rack's editorial team

Nick Root is a contributor to Grit Daily and the co-founder/CEO of Intergiro.For over 10 years, Nick has worked in some of the oldest and largest financial institutions in the world, including Lloyds Bank as a Senior Finance Manager turned Senior Data Scientist, and Legal & General as a Financial Analyst. This experience, working with both finance and technology, allowed Nick to see where flaws existed in the current fintech space and gave him the knowledge needed to fix them.It was this drive that seeded the original idea of Intergiro, a platform offering a complete system as an acquirer, issuer and account provider as well as a B2B platform focused on the needs of business banking and a B2B2C platform focused around Banking-as-a-Service.

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