Time to Bite Back

An interview and article around the same theme was published by The Fintech Magazine, issue 13, a publication by Fintech Finance.

Rivals are getting their claws into banks’ SME customers. But they don’t have to stand there and take it, say Mark Hartley and Conny Dorrestijn of BankiFi.

When a bunch of accountants looked at what was wrong with business banking, they started with four key things an SME does, day in and day out: invoice their customers, collect in the money, pay their suppliers and keep on top of their tax returns. Then they built a banking business app called CountingUp to assist businesses in these tasks. Soon, it became the most successful accounting and business banking app in the UK.

It rather proves the point that if high street banks want to continue to matter to SMEs, they have to pay attention to what the customer wants and offer it all to them on a single plate.

It’s the example that Conny Dorrestijn and Mark Hartley, cofounders of business banking platform BankiFi, often use to demonstrate where the new battle lines are in SME banking – and the need for incumbents to step up. They reasoned that there had to be a way for banks to pick up on all the mundane but important tasks that sapped an entrepreneurs’ time – and devised a solution with the BankiFi business banking platform.

Its founders don’t pull any punches when talking about the institutional inertia that’s currently forcing small business owners to look elsewhere.

“Having a bank account and having a bank product doesn’t solve anywhere near the problems that you need to solve as a small business owner,” says Hartley.

“Banks are creating their own problems. They are not being forward-thinking enough because, first and foremost, I don’t think they realise they have a problem. They are so organisationally entrenched in a siloed mentality of selling products and not really understanding what the customer wants from them. They have key performance indicators that are all about short-termism, profitability, and shareholder value; they are about functionality and product, not about wrapping themselves around that very customer. So, banks never address the problems they should be thinking about in the medium to long term. Last, but not least, they have an absolute inability to innovate inside the status quo and they ‘hide’ behind the necessity to abide by risk, regulation, legislation, and compliance.”

Ouch! But if BankiFi isn’t afraid to tell it like it is, it’s only because it’s convinced that banks stand to benefit most from offering these bundled business services. Banks, after all, have something many app-based service providers like CountingUp, don’t: the ability to lend working capital.

“Availability of affordable, short-term credit is essential for every SME. How a bank offers this solution and how it treats its SME customers from start to finish can set it apart”, says Dorrestijn.

“With open banking, banks now have an instant view of your whole financial position and the health of your business, by looking at the invoices you send out, the people who pay you and when they pay. So they can tailor-make the lending to you, rather than just offer a line of credit you dip into twice a year.

“We have a lot of sympathy for banks,” she adds. “They have picked up the tab for all the industry’s security and regulation issues. But we feel it’s now time for them to bite back – not let their profitable business be eaten away by all sorts of apps and niche players, but say ‘you know what? We can offer invoicing inside the bank account. We can offer personalised products’.

The case for improving business banking services that they can monetise is made all the more compelling by the relative difficulty of being able to compete with challengers in the personal banking space.

But it would be unfair to say every high street operator has been idle. They might have been slow to catch on, but they’re learning fast from novel ideas for improving and even attracting SME accounts, often collaborating with challenger fintechs in order to help SMEs develop their financial maturity and capabilities.

In November last year, NatWest launched a free-to-operate digital business banking platform, Mettle, which is focussed on a better user experience. It also partnered with electronic receipt management system, Sensibill, to offer its SME clients assistance in billing.

Nationwide, too, has plans to launch a digital business banking service imminently. It hopes to win 340,000 business banking customers in the next five years, and is currently collaborating with 10x Future Technologies to build its digital proposition.

There are others providing access to alternative sources of finance through select partners, or discounted access to SME tools like Xero accounting software. Then there’s Metro Bank, which already has a ‘phygital’ (physical branch and digital app) business account and related services geared towards smaller entrepreneurs and freelancers. Isn’t that good enough? Sadly, much of the high street’s efforts are misguided, says Dorrestijn.

“People will increasingly get bored of having to deal with hundreds of apps, and it’s not very caring of a bank to send you wandering around in a jungle of them. If a bank can bring the same services behind the face of its business bank account, that would be preferable to hopping from one app to another. Utilise your position as a trusted entity and offer services through the channel they know and often like. That's more meaningful to the everyday requirements of running a business.”

“Banks have a massive head start on all these newcomers, because they’ve already got millions of business customers; they just don’t service their requirements very well”

Another way in which BankiFi is helping its clients is by monetising opportunities arising out of open banking and the revised Payment Services Directive (PSD2).

“We describe it as the law of unintended consequences,” says Hartley. “The proposition by the Competition and Markets Authority in the UK is that people desperately want to switch current accounts, and move from one bank to another, and that there should be more organisations offering services other than banks, around payments, etc. But those banks can now access data that their customers hold at other banks. One of those smart-thinking banks should realise that they can now see all my data in one place, and that they can act as the third-party processor under the auspices of PSD2 and open banking,” he explains. “We are all about utilising the legislation and regulation to enable a bank to make money from it; and we can show them how.”

Read our blog post on
Open Banking, PSD2 and the law of unintended consequences

Financial market participants, be they incumbents or challengers, know what a December 2018 EY (Ernst & Young) report on the future of SME banking acknowledges: that ‘the major high street banks retain a substantial stronghold of the SME banking market, particularly business current accounts, where the top five banks account for around 75 per cent of the market. Whilst their market share is being eroded by the rise of challenger banks and fintechs, the incumbent players continue to hold affinity with their customers. SMEs continue to trust the brand and reputation of their bank, though they have experienced challenges in meeting their evolving service expectations’.

That last observation should shake banks out of any complacency, says Hartley.

“What we’re saying to a traditional bank is ‘you can do exactly what CountingUp, Tide, and Coconut have done in trying to take market share, by going directly to the end user. And, actually, you’ve got a massive head start on all of these newcomers, because you’ve already got millions of customers, you just don’t service their requirements very well. So, why don’t you offer the same services as these new boys and girls in the marketplace?’. BankiFi enables traditional banks to offer that to their existing client base”.

“Banks do not need to invest ridiculous amounts of money,” adds Dorrestijn. “With our approach, a bank can put a toe in the water, put out a test, and embrace its business customers in the way it should. It’s not about marching in with 150 consultants.

“You can do it,” she tells them. “But you’ve only got a limited period of time that the world will allow you to bite back”.