In this Q&A with Startups Magazine, BankiFi’s CEO and Founder, Mark Hartley, talks to Sheryl Miles about the common misconceptions associated with neobanks, having the right balance between competition and protection, and encouraging positive change within banking.

What motivated BankiFi to launch a myth-busting campaign specifically targeting the misconceptions around digital-only neobanks?

I think statistics can be used to prove any form of point, [and] neobanks in their public commitments have stated that they had a target of getting 8% market share in the business current account space, and they've all magically got 8% market share. I’m not sure I believe that. They might have customers who have opened up business current accounts with them, but they won't necessarily be their primary current account.

The reality is that the larger banks are still the go- to place for small businesses whenever they decide to open a current account or start a new business.

The services that digital only neobanks provide don’t address the biggest issues that the small business owners, particularly sole traders, face - which are getting paid on time, and collecting their money. None of these organisations offer services that help the SME do those things.

Then there’s this idea that we need to have lighter regulation, but why would we want lighter regulation when we're dealing with people's money? The idea that, in order to foster the Fintech revolution, we need to make it easier for people to get into the industry and potentially put SMEs at risk isn’t something I support.

Could you elaborate on the three myths that BankiFi aims to dispel regarding digital-only neobanks? How do these myths impact SMEs?

Firstly, let’s address the statistics surrounding market share. Specifically, whether that market share is with primary business current accounts or whether customers have multiple banking relationships. We know that SMEs do have multiple banking relationships, and we know this because we can see this within our data that we’ve gathered from our experience launching products with big banks. Because of this, we can see the linked bank accounts which demonstrate that small business owners have multiple accounts.

Secondly, is this idea of deregulation in the UK. The UK has been brilliant at getting the balance right between regulatory requirements and making it easier for competition to thrive. There is a reason why the UK FinTech industries are working well, and that's because we have got the balance between regulation and competition or enablement of competition.

Lastly, we’re looking into why business customers want a digital-only relationship. When you're running your business, you want to have the ability to talk to human beings – that doesn't mean you need to have physical bank branches, but it does mean that you should give SMEs the option to talk to a representative of the financial institution. We think the idea that you can have a digital-only scenario for businesses is wrong. We see that all the time in our own engagement with customers, and the research shows that business banking customers want both a digital relationship and an in-person relationship with their financial service provider.

Why do you believe there is a lack of evidence to support the claims made by digital-only neobanks regarding their market share in the SME sector?

I don't think there's a lack of evidence, but I do think there's a lack of scrutiny. Nobody questions these things. One of the things I think is worth looking into and challenging is the bounce back loan situation. The number of organisations that were recipients of positive news in the press, around how they helped during COVID and how their loan book grew, no one fact checks this.

There are places that could help validate these claims, places like pay.uk and the British Bank Association UK Finance (formerly the BBA) – because they sit on all the data and the statistics that would help validate whether some of these claims are accurate or not.

How do you think regulations should balance fostering competition and protecting the finances of businesses and individuals?

I don't think we've got it far wrong. Deposit-taking institutions need to be heavily regulated, and there’s a reason why they’re heavily regulated because we as individuals and businesses are entrusting these organisations, and we’re protected by the financial compensation scheme. I think there is a bar that needs to be set, in which you first need to prove your capability as an individual or an organisation.

I think we've got the balance right between making it accessible to start a business and provide a service, but at the same time having to overcome that hurdle to be able to operate within a highly regulated environment.

You should be running a Fintech business because you're solving problems and you're finding solutions to problems, not because you want to be an entrepreneur.

Can you share some insights into the common challenges that SMEs face and how digital-only neobanks can address them effectively?

They can't. Small businesses [sole trader to 20- 30- person company] are treated as this one amorphous mass, but they're not. They're all very different. But one common theme among them is that they don't have any time, and they have a real problem collecting money owed to them.

[BankiFi] have tried to address the financial administration side of those things by making the process of invoicing through to the collection of money as simple and as smooth as possible.

Our engagement team reach out to the small business owners to see how we can improve our product, how we can help them, and what they think about other things that we could put into the product that would help them go about their day-to-day things – which is concentrating on running their business, not their financial admin and chasing customers to collect money that they're owed.

I don't think the digital neobanks can do that because they don't have human beings that enable customer engagement. Their method is to say that bricks and mortar and ‘human’ banking is too costly, and it doesn't work in their model of net income margin. The whole point is that they're saying the banking model is too expensive, and we need to eradicate human beings from it.

But [Neobanks] are going to have to provide services that involve human being-led interactions to a certain extent. The adoption of AI services and the uptake of it by the end user will take time. We still don't have 100% penetration on digital banking services, even though they've been around since the mid-nineties. So why would we think that any other form of technology is going to be adopted overnight? They're going to have to get the balance right.

How do you envision the future of business banking partnerships and the role of digital-only neobanks in meeting the complex needs of SMEs?

It depends on what their own strategy and direction is. If they want to be real banks whereby their model is based on making money out of the arbitrage between lending and paying interest on savings, then they will have to have some form of human interaction.

When businesses make complex decisions, two things need to happen: Firstly, the business needs to be able to talk to somebody and secondly, the bank needs to be able to talk to the business to make sure that they're not giving money to a high-risk organisation that won't be able to fulfil their requirements.

If you just want to be a brand then maybe that won't be the case, but I'm not sure people will want to pay £5 to £10 a month for an app and a fun-coloured card. Also, I don't think that's the way it will move. So, they’re going to have to either alter what they do if they want to be classed as a real bank, or not.

What are your thoughts on the broader neobanking sector's response to the needs of SMEs? Are there any promising trends or developments you've observed?

The best thing about the digital neobanks is they forced traditional banks into having a better digital experience. They prototyped what a great digital user experience should be. So, despite my disparaging comments, they have made beautiful interfaces. But beautiful interfaces alone don't make for a big, successful bank.

I think what some of the digital banks have done well is build a ground-up digital experience, and I think that's a learning which is really good for the whole of the industry to take – just because you can do something in branch, it doesn’t mean that’s what you should do within your digital experience. Use the digital experience for what the digital experience should be.

How do you believe BankiFi’s campaigns and initiatives can bring about positive change and encourage digital banks to do better?

I think it's important to say that I'm not interested in selling my product or service to a neobank that has a digital only scenario because it doesn't address what I think the biggest problems are. One of which is the balance between digital and human interaction.

What we hope will be the result from our campaign, is to make small business owners realise that, just because the fashionable thing is to beat up traditional banks and say that they don't provide the types of services these new ‘digital-run neobanks’ do, when they do start their own business or look at a business-banking relationship, which is a fundamental, we hope that our commentary will make startups and SME owners think twice about traditional banks. Just because these financial institutions have been around for centuries, this is not a bad thing. It’s actually a very good thing.

The reason they've been around for hundreds of years is because, on the whole, they've done their jobs properly.

They are regulated and are protecting our money through the financial services compensation scheme, and provide the same services that neobanks do, however they do an awful lot more and you can speak to an actual human being.

Looking ahead, what do you believe should be the top priorities for business banking partners working with SMEs, particularly in terms of addressing cash flow concerns?

Several of our customers and prospects, both here and internationally, have done research into what the biggest requirements are for the small business owners. I'm delighted to say that that research prioritises the two SME pain points that we really focus on solving: saving time and getting paid.

The biggest stat that I'm most proud of about BankiFi, is that for the invoices and payment requests we send out on behalf of our customers, over 70% of them get paid within two days. [On average] It takes somewhere between 55 and 70 days to get paid, but our product, which is branded as the incumbent bank we’re partnered with, highlights the point that we're helping customers get paid on time.

It’s a really important thing because we know that so many SMEs get into distress and potentially go out of business because they do not or cannot collect their money on time.

What are your plans for further supporting SMEs and promoting clarity in business banking discussions?

So, I think the next thing for us to concentrate on is the optionality around payment methods, with a focus on the fees and fee structures that people pay.

A small business customer needs to offer [a client] as many options as they can to help them get paid on time. Whether that's bank transfers, direct debits, variable recurring payments, or card transactions. We offer all those capabilities within our product, but one of the things that I think small businesses are not really au fait with is the bank transfer model that has been enabled by open banking.

Card processing providers are charging ad valorem fees. It's generally a flat rate of 20p per transaction, plus a percentage of that transaction. So, small businesses are giving away a substantial amount of their turnover or revenue for what is ostensibly the exact same process that they go through, whether a transaction is 1p or £1 million.

The card processors will hide behind claims of chargebacks, and people want the protection of the card transaction. Well, that claim is true in certain cases, but it’s not always the case. We want to be able to help propagate and educate both the recipient of the money, (the trader and the payer), to show them that it's actually fair to pay by a bank transfer, and the user experience doesn't need to be any less convenient than a tap-and-go that you do through a card transaction. The difference is that the trader gets their money immediately into their bank account, and they don't pay unfair fees.

For me, it's all about ethics, fairness, and education and knowing that the sole trader or small business is getting their money and not paying silly fees.