On the back of a momentous start to 2023, leading embedded banking platform BankiFi has denounced three common myths around a new breed of digital-only neobanks that continue to persist despite ample evidence to dispel them.

As part of its continued efforts to highlight the issues faced by small-to-medium-sized enterprises (SMEs), and to promote clarity in discussions related to business banking, banking technology provider BankiFi has launched a campaign to dispel misleading myths around digital-only neobanks. In doing so, the company hopes to highlight the benefits on offer to SMEs of working with banks that prioritise customer-centric approaches.

As outlined by the company’s founder and CEO, Mark Hartley, the three myths are as follows:

1 – Digital Only Neobanks Have Captured the SME Market

The original ambition behind introducing the Banking Competition Remedies (BCR) in 2018 was to expand the competition among providers of financial services to SMEs. Despite significant effort and public commitments made by digital-only neobanks around market share, there is very little evidence to suggest they have captured the business current account market of SMEs away from legacy financial institutions, particularly when it comes to serving as the primary business account.

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, with Starling claiming 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, including 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, and it remains where SMEs feel comfortable depositing, sending, and saving money.

2 - Regulatory 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, which has reaffirmed the importance of regulations in protecting the finances of people and businesses. 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 and 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.

3 - 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 per cent of small businesses are operating with fewer than 15 cash buffer days, then you begin to see the scale of the problem facing SMEs.

Speaking on the company’s announcement, Mark Hartley, CEO and Founder of BankiFi commented: “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.

“The good news is that we’re already beginning to see this happening in the broader neobanking 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.

“The need for this support has never been greater, especially with companies of this size becoming increasingly unstuck on account of cashflow problems. One of the best ways to address cashflow concerns is to give people access to tools that help them to get paid more quickly. Moving forward, this must be a huge priority for business banking partners working with SMEs.

“BankiFi's solution, which is branded and sold through its banking relationships, is helping SMEs to get paid in one to two days on average. Crucially, that’s one to two days from the date an invoice was created, not the due date, which suggests with BankiFi’s white-labelled service, SMEs get paid significantly in advance of the invoice due date. As such, our solution is helping to give SMEs more power over their business finances.”

BankiFi’s latest announcement comes on the heels of being recognised as a key player in Celent’s “Becoming a Challenger in Small Business Banking” Report. Likewise, earlier this year, the company launched a whitepaper, entitled ‘SME Banking Channels: Converting a money pit into a business opportunity`, which was released in partnership with the RedCompass Labs.