BankiFi has denounced three common myths around digital only neobanks that continue to persist despite ample evidence to dispel them.
The BankiFi campaign is part of its ongoing efforts to highlight the issues faced by small-to-medium sized enterprises (SMEs). And is consistent with BankiFi’s mission to promote clarity in discussions related to business banking. Specifically, the company hopes to highlight the benefits on offer to SMEs of working with banks that prioritise customer-centric approaches.
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BankiFi founder and CEO, Mark Hartley, summarises the three myths as follows.
Digital only neobanks have captured the SME market
The original ambition behind the Banking Competition Remedies in 2018 was to expand competition among SME financial services providers. There has been significant effort and public commitments made by digital only neobanks around market share. Hartley argues there is very little evidence to suggest they have captured market share from legacy banks. This is particularly the case when it comes to serving as the primary business account.
Says Hartley: “People may mention that Monzo and Starling have reported meeting their BCR commitments, each achieving over 8% market share on business current accounts. Monzo has stated they have over 250,000 business current account holders. Starling claims it also has 520,000 small business accounts. While these numbers look impressive, it’s not clear whether these are primary accounts used by SMEs, or secondary accounts.
“Digital only challenger bank and fintech solutions are often used by SMEs as supplementary services to those already provided by larger companies. This includes neobanks that provide both physical and digital experiences. Ultimately, the staying power of institutions of this nature has been much greater than many people expected. It remains where SMEs feel comfortable depositing, sending, and saving money.”
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By GlobalDataRegulatory hurdles have stifled digital only neobank growth
Last summer, an all-party parliamentary group said the “one-size-fits-all” approach to banking regulation was slowing down the growth of neobanks. Since then, there has been a lot of turbulence in the sector. This has reaffirmed the importance of regulations in protecting the finances of people and businesses.
Hartley adds: “Looking at parallels across the pond, it was down to the lack of regulatory requirements for the smaller banks that resulted in such turmoil.
The UK’s regulatory framework is among the best in the world. It should not be weakened just to enable a more competitive field. It’s a good thing that regulators are quizzing digital only neobanks on areas such as fraud and AML checks to ensure the right protections are in place, the same as they are for more traditional financial institutions. Lighter regulation isn’t the way forward if it’s causing a risk to people’s businesses and livelihoods.”
SMEs all want different things from neobanks
SMEs come in all different shapes and sizes. But they struggle primarily with the same issues. Chiefly, SMEs want banking solutions that help them to pay and get paid, alleviating issues around late payments.
“In the UK, SMEs are owed an average of £250k in late payments according to Time Finance’s Invoice Finance team.
Likewise, QuickBooks has found that SMEs in the US are owed $304,066 in late payments on average. When paired with research from JPMorgan Chase Institute, which shows that 50% of small businesses are operating with fewer than 15 cash buffer days, then you begin to see the scale of the problem facing SMEs.
Hartley concludes: “SMEs are not getting enough value from digital only neobanks and need more support. By highlighting and dispelling some of the common ‘myths’ that persist around digital only neobanks, we hope to draw attention to this important issue and to encourage organisations like this to provide more effective support to SME partners.
‘SME’s want a mix of digital and physical’: Hartley
“The good news is that we’re already beginning to see this happening in the broader neo-banking sector. Companies, such as Metro Bank are beginning to talk openly about the importance of combining digital experiences with human-to-human interactions.
Providing a mix of physical and digital experiences is what SME customers want. Now, the onus is on digital only neobanks to begin meeting these expectations.
“In a fragmented SME market, there’s a place for the digital only proposition that works for a certain type of SME. However, it’s usually for those on the smaller side, or for sole traders. It’s when an SME has more complex needs that the proposition starts to fail.
