How Account-to-Account Real-Time Payments and Embedded Finance Speed Up the Cash Flow Cycle for MSMEs

In today’s rapidly evolving financial landscape, two transformative innovations—account-to-account (A2A) real-time payments and embedded finance—are reshaping how micro, small, and medium enterprises (MSMEs) manage their cash flow. Efficient cash flow is the lifeblood of MSMEs, and access to timely payments often determines the survival and growth of these businesses. Traditionally, delays in payment settlement and dependence on outdated financial processes have created barriers to fast, seamless transactions. However, A2A real-time payments and embedded finance have emerged as game-changers in addressing these challenges.

Understanding Account-to-Account Real-Time Payments Account-to-account real-time payments refer to the direct transfer of funds between bank accounts, bypassing intermediaries like card networks. These transactions are instant or near-instant, offering immediate settlement. Unlike traditional payment methods, which often rely on batch processing and have settlement delays ranging from days to weeks, real-time payments (RTP) allow businesses to access funds as soon as a payment is made. In many countries, real-time payments are facilitated by national payment infrastructures like the Faster Payments System in the UK, SEPA Instant in the European Union, RTP Network in the US, and the Unified Payments Interface (UPI) in India. These systems make it possible to send and receive money directly between bank accounts within seconds, 24/7. For MSMEs, A2A real-time payments bring significant advantages:

Instant Access to Cash: The ability to access funds immediately means businesses no longer face cash flow gaps caused by long settlement periods.

Lower Costs: A2A payments often bypass traditional card networks and the associated interchange fees, making transactions cheaper for both businesses and customers. -

Operational Efficiency: By removing manual reconciliation processes and enabling automation, businesses save time and resources.

What is Embedded Finance? Embedded finance refers to the seamless integration of financial services into non-financial platforms. Rather than requiring customers to interact with traditional banking interfaces, businesses can offer financial services—such as payments, lending, and insurance—directly within their applications, websites, or software. For MSMEs, embedded finance allows them to streamline financial operations within platforms they already use. This eliminates the need for business owners to interact with banks or third-party financial providers separately. Examples of embedded finance include buy-now-pay-later (BNPL) options integrated into e-commerce platforms, payroll services embedded within HR software, and lending solutions embedded in B2B marketplaces.

Speeding Up the Cash Flow Cycle for MSMEs Cash flow is essential for MSMEs as it determines their ability to pay suppliers, employees, and manage day-to-day operations. Traditionally, MSMEs have faced significant challenges in managing their cash flow due to delayed payments, slow bank transfers, and reliance on external financing to bridge cash flow gaps. Account-to-account real-time payments and embedded finance are transformative in overcoming these bottlenecks.

1 Reduction in Payment Delays One of the primary challenges MSMEs face is delayed payments, especially from larger clients who take advantage of extended credit terms. In industries like manufacturing, retail, and construction, MSMEs often operate on 30 to 90-day payment cycles. However, real-time payments can address this issue by enabling immediate fund transfers once an invoice is approved. For example, a small construction business that has completed a project can issue an invoice and receive payment in real time via A2A payments, ensuring that funds are available within seconds rather than waiting weeks for traditional clearing processes. The success of India’s Unified Payments Interface (UPI) is an excellent case study of how real-time payments can improve cash flow for small businesses. UPI allows businesses to collect payments instantly, which has led to widespread adoption among MSMEs. As of 2023, UPI was processing over 8 billion transactions per month, with many MSMEs citing it as a major factor in speeding up their cash inflows and reducing dependency on cash payments.

2 Automated Reconciliation Real-time payments are not just about speed. They also provide rich data, which is crucial for automating financial operations such as payment reconciliation. In traditional systems, reconciling payments with invoices often requires manual work, which can be time-consuming and prone to error. With A2A real-time payments, MSMEs can automate much of this process. Transactions are linked with metadata that include invoice numbers, client details, and payment descriptions. This allows businesses to automatically match payments to invoices, reducing errors, and freeing up time for more value-added activities. An example of this is seen with banks like ING and fintech companies like Stripe. These financial services providers have built solutions that enable MSMEs to automatically reconcile incoming payments with outstanding invoices in real time, reducing the manual workload on accounting teams.

3 Embedded Lending and Working Capital Solutions Access to credit is another critical element of managing cash flow, particularly when MSMEs need to bridge short-term gaps between payments. Embedded finance has unlocked new avenues for MSMEs to access working capital directly within the platforms they use for sales, payments, or procurement. For instance, Shopify Capital provides funding directly to merchants on its e-commerce platform based on their sales history. By embedding lending services within its ecosystem, Shopify allows businesses to get quick access to funds without the need for lengthy application processes or credit checks typical of traditional banking. Similarly, PayPal Working Capital provides loans to MSMEs that use PayPal for transactions. These loans are repaid automatically from a portion of future PayPal sales, making repayment flexible and aligned with business performance. This integration of lending solutions directly within platforms eliminates much of the friction associated with traditional loans, enabling MSMEs to access funds almost instantly, thus speeding up their cash flow cycle.

4 Buy-Now-Pay-Later for B2B Transactions The buy-now-pay-later (BNPL) model, initially popularized in consumer e-commerce, is now making its way into B2B transactions. BNPL allows MSMEs to purchase goods or services without paying upfront and instead spread payments over time. This embedded finance solution helps MSMEs manage cash flow by deferring payments, while still acquiring necessary goods or services to continue operations. Fintech companies like TreviPay and Resolve are pioneering B2B BNPL solutions, enabling MSMEs to access credit at the point of sale. For example, a small manufacturer can purchase raw materials using BNPL and pay for them over a 60-day period, allowing them to generate revenue before settling the payment. This increases purchasing power without immediately depleting cash reserves, which improves liquidity and financial health.

The Broader Financial Impact on MSMEs The integration of A2A real-time payments and embedded finance into MSME operations does more than just improve immediate cash flow; it has a profound impact on the overall financial health of these businesses.

1 Improved Cash Flow Predictability A key challenge for MSMEs has always been unpredictability in cash flow. Late payments or delays in accessing funds can disrupt operations and result in missed opportunities. Real-time payments solve this by offering instant access to money once a payment is initiated. MSMEs can plan their finances more accurately, ensuring they have sufficient liquidity to meet their obligations. For example, a retailer using an A2A payment solution can receive funds from customers instantly, allowing them to restock inventory quickly and avoid stockouts, thereby maximizing sales.

2 Reduced Dependence on External Financing One of the primary reasons MSMEs seek external financing is to cover cash flow gaps caused by delays in payments or seasonal fluctuations in revenue. Real-time payments and embedded finance solutions reduce the need for short-term loans, as businesses can access cash immediately when a transaction is completed. This reduces interest costs and reliance on external capital, contributing to healthier balance sheets.

3 Easier Access to Credit While real-time payments speed up the cash flow cycle, embedded finance offers MSMEs better access to credit. Traditional bank loans often involve lengthy approval processes and require collateral, which can be a hurdle for many MSMEs. In contrast, embedded finance solutions leverage data from payment platforms, sales histories, and transaction records to offer financing based on real-time business performance. For example, Amazon Lending uses sellers’ historical sales data on the Amazon platform to offer loans without the need for a detailed application process. Similarly, Square Capital provides business loans based on transaction data from Square’s payment platform. These alternative financing options make it easier for MSMEs to secure funds quickly without the traditional red tape of bank lending.

4 Building Credit Profiles By participating in embedded finance ecosystems and using real-time payment systems, MSMEs can build stronger credit profiles. Many fintech platforms that offer embedded lending report repayment behavior to credit agencies, which helps businesses that may not have had access to traditional credit in the past. This builds a credit history, making it easier for MSMEs to access future financing on better terms.

Real-World Examples of Success Several banks and fintech companies have embraced A2A real-time payments and embedded finance solutions, providing MSMEs with the tools to manage cash flow more effectively. -

Zelle? (US): Zelle’s real-time payment network is used by several major banks in the United States. MSMEs can use Zelle to receive payments directly into their bank accounts within minutes, providing faster access to funds compared to traditional ACH transfers. -

Stripe : Stripe, a global payments technology company, offers a suite of tools for MSMEs, including real-time payouts to bank accounts via Stripe Instant Payouts. Additionally, Stripe has partnered with banks to provide embedded lending solutions, allowing MSMEs to access working capital based on their payment data.

Ant International Group (China): Ant Group’s Alipay platform integrates real-time payments and embedded finance, offering?

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