Press Release: BankiFi Busts Top Three Digital Neobank Myths

On the back of a momentous start to 2023, we at BankiFi have taken a stand against three persistent myths surrounding digital-only neobanks, which continue to circulate despite substantial evidence to dispel them.

As part of our ongoing efforts to highlight the challenges faced by small-to-medium-sized enterprises (SMEs) and to foster clarity in discussions related to business banking, we have launched a campaign to address these myths about digital-only neobanks. Through this campaign, we aim to showcase the advantages for small businesses of working with banks that emphasise a customer-centric approach.

Our founder and CEO, Mark Hartley, has outlined the three myths as follows:

1: Digital-Only Neobanks Have Captured the SME Market

The Banking Competition Remedies (BCR) initiative launched in 2018 aimed to expand competition among financial service providers for SMEs. Despite substantial efforts and claims made by digital-only neobanks regarding their market share, little evidence suggests that they have truly captured the business current account market from legacy institutions, especially as primary accounts for SMEs.

For example, while Monzo and Starling have each reported that they have achieved over 8% market share in business current accounts—with Monzo stating it has over 250,000 business current account holders and Starling over 520,000 small business accounts—it’s unclear if these are primary accounts or merely supplementary.

SMEs frequently use digital-only challenger banks as supplementary services to those offered by larger, established banks, which provide both physical and digital experiences. Ultimately, small businesses still feel more secure keeping their primary deposits, transactions, and savings with these traditional institutions.

2: Regulatory Hurdles Have Stifled Digital-Only Neobank Growth

In the summer of 2022, an all-party parliamentary group claimed that a "one-size-fits-all" approach to banking regulation was hindering the growth of neobanks. Since then, we’ve seen significant turbulence in the sector, underscoring the importance of regulations in protecting people’s and businesses’ finances.

The UK’s regulatory framework is among the strongest in the world and should not be weakened to create a more competitive landscape. It’s positive that regulators are scrutinising digital-only neobanks on aspects such as fraud prevention and anti-money laundering checks to ensure adequate protections, as they do with traditional financial institutions. Lighter regulation, if it increases risk to businesses and livelihoods, is not the solution.

3: Small Businesses All Want Different Things from Neobanks

While SMEs vary greatly in size and focus, they share many common challenges. Primarily, they need banking solutions that enable them to pay and get paid on time, addressing issues related to late payments. In the UK, SMEs are owed an average of £250,000 in late payments according to Time Finance’s Invoice Finance team.

Similarly, QuickBooks found that SMEs in the US are owed, on average, $304,066 in late payments. Research by JPMorgan Chase Institute reveals that 50% of small businesses operate with fewer than 15 cash buffer days, highlighting the severe impact of late payments on SMEs.

Our CEO, Mark Hartley, commented: "SMEs need greater value from digital-only neobanks and more support. By tackling and debunking some of the common ‘myths’ around digital-only neobanks, we hope to draw attention to this issue and encourage these organizations to better support SME partners.

"The good news is that we’re already seeing positive changes in the broader neobanking sector. Some companies, like Metro Bank, have begun openly discussing the importance of combining digital and human interactions. Providing a blend of physical and digital experiences aligns with what SME customers seek. Now, digital-only neobanks need to step up to these expectations.

"In the diverse SME market, there is a role for digital-only offerings that cater to smaller SMEs or sole traders. However, as SMEs grow and face more complex needs, the digital-only proposition often falls short.

"The need for support has never been greater, particularly as cashflow problems continue to challenge SMEs. One of the best ways to address cashflow concerns is to provide tools that help SMEs get paid faster. Going forward, this should be a primary focus for business banking partners.

"BankiFi's solution, offered through our banking relationships, helps SMEs receive payments within one to two days on average. Crucially, this timeframe begins from the invoice creation date, not the due date, meaning that with our white-labeled service, SMEs are often paid well before invoices are due. This gives SMEs more control over their finances."

Our latest announcement follows our recognition as a key player in Celent’s “Becoming a Challenger in Small Business Banking” report.