Can you risk remaining a one-market SME?

Yishay Trif

Yishay Trif, CEO at payment service provider MoneyNetint recently spoke to Business Leader about whether you can risk remaining a one-market SME.

The best way to grow your company is to play it safe and hope that opportunities come to you…said no business guru ever.

Business isn’t about taking risks for the hell of it (though many successful leaders have taken enormous gambles that ended up paying off). It’s about the careful calibration of risk and reward. Sometimes, doing nothing might well be the right thing; at others, being bold is not only a good bet, but it’s also the only sensible course of action.

As the world lurches from one Covid-related crisis to another, it’s understandable that the last thing on many SMEs’ to-do list is an expansion into new markets. And if the pandemic had hit a few years ago, before the recent revolution in financial affairs, they’d undoubtedly be right to push this down the list of priorities. But the financial barriers that once stood in the way of overseas expansion have recently come tumbling down – and that should change every SME’s calculation of whether they can afford to put their ambitions on hold.

Fortune favours the smart

If you’ve ever watched the 1994 blockbuster Forrest Gump (and who hasn’t?), you’ll remember how the hero makes his millions. After buying a small fishing vessel in memory of his old army buddy, he spends months catching not so much as a sardine…before a hurricane blows in and wipes away his competition. In an instant, Forrest becomes master of the seas and all the fish that’s in them.

Let’s not get ahead of ourselves: success in overseas markets isn’t assured just because other businesses are retrenching and putting their own expansion plans on ice. What your competitors’ inaction does change, however, is the risk-reward calculation. Suddenly, the prize of beating other businesses into a new market becomes much more lucrative.

That doesn’t mean businesses should bet the farm on expanding overseas. But there needs to be a good reason for not seizing this opportunity. Second-guessing the competition and following the wisdom of crowds doesn’t cut it. Businesses should bear in mind that fortune doesn’t necessarily favour the brave, but that being smart is almost always the best way to seize the initiative. And the best way to make these business-defining calls is when you know something your competition doesn’t…like how to break the glass ceiling of international payments that has so long stood in the path of SMEs’ overseas growth.

The Money Trap

The idea that a humble SME could become a multinational concern shows how quickly and profoundly the Internet has changed global business. Where once the best a company could hope for was its own premises on the High Street, the web has enabled anyone with a broadband connection to open up a shop window to the whole world. What’s more, it has sparked a labour revolution, enabling organisations to source and hire freelancers to support them with sales, marketing, design, translation and all the other necessities of setting up in a new market.

But somewhere along the line, this revolution in business butted up against the costly reality of international payments. Firms that want to trade with the world quickly find that the “level playing field” of the web isn’t all it’s cracked up to be, thanks largely to the cost and complexity of transacting across borders.

Transferring money internationally has always been an expensive business, especially when it involves small, frequent payments. In the UK alone, SMEs lose £4 billion a year that’s “hidden” in their banks’ international fees exchange rates. For example, research from Oxford Economics found that they typically pay between 1.12 percent and 3.68 percent extra for the ‘privilege’ of doing business abroad, making international trade more trouble and expense than it’s worth.

The expense of making overseas payments cuts deep into SMEs profit margins and causes significant problems with a range of common transactions. These include (but are not limited to) the cost of buying raw materials and components from abroad, managing payroll for overseas staff, and paying business taxes.

Given the expense (not to mention the compliance headaches) of international transfers, it’s small wonder that many SMEs consider opening new markets too expensive to be worth the trouble. But once you dig into the recent revolution in cross-border payments, “playing it safe” suddenly stops looking like such a smart bet.

Fintechs and the revolution in global trade

The rise of fintech has changed the face of consumer and business finance in the space of just a few years. Of particular relevance for SMEs is the emergence of new providers that help small businesses and sole traders with cashflow and invoicing software, with the kind of capabilities that would once have been available only to large enterprises. Meanwhile, other service providers like Mambu are creating an alternative lending industry with scalable loan management technology.

For all the talk about tech, however, it’s important not to lose sight of what’s always been the most important factor in business banking: relationships. And that’s where we’ll see the financial services industry finally shatter the glass ceiling that international payments have been to SMEs for so long.

In the last few years, a new breed of fintechs has emerged which is creating payments channels between a network of partner banks around the world. By forging new relationships between banks in multiple countries, they enable any business, no matter its size, to transfer money across borders as easily as in their home country.

As new fintechs develop these relationships – not just with banks, but with regulators and other financial stakeholders in each market – they are smoothing the path of international payments for everybody. They are creating a new cross-border financial infrastructure for the world, one where anyone can participate and begin unlocking new markets without the hassle and expense that’s always stood in their way of achieving their dreams of growing their business.

Of course, none of that means SMEs must expand overseas. But it absolutely must inform their calculations over whether they can afford to sit still and play it safe, while the rest of the competition harnesses these new networks to move into new markets.