You may have heard the phrase, ‘don’t let the truth get in the way of a good story’. Whether it’s the claim that goldfish only have a three-second memory, or that bulls get angry when they see the colour red, our world is crammed full of myths and misconceptions that have no factual evidence. 

The financial services sector is no different, with new assertions and theories constantly popping up that don’t hold water, and concerningly they are proving to be damaging claims.

In my role as CEO and founder of BankiFi, an embedded banking service provider, I recently set out to tackle a few of the most prominent myths pertaining to digital-only neobanks, with a specific focus on how they serve small-to-medium sized enterprises (SMEs). I’m making this bold move to dispel the industry’s biggest misconceptions in the hope of bringing the spotlight back onto small business’ needs.

The campaign highlights three common myths, which are as follows:

  • Digital-only neobanks have captured the SME market
  • Regulatory hurdles have stifled digital-only neobank growth
  • SMEs all want different things from neobanks

Depending on how close you are to these fields then these myths may come as a surprise, especially given the almost universal praise digital-only neobanks have received since they started to make inroads within Europe and the US in the past decade. While solutions of this nature have certainly captured the attention of the public and the media, their cut through with SMEs has been decidedly less noteworthy. 

Failure to deliver

Despite the backing of the Banking Competition Remedies (BCR) in 2018, there is very little evidence to suggest digital-only neobanks 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. Where they are used, digital only neobank solutions often serve as supplementary services to those already provided by larger companies.

Some of you may point to the claims of Monzo and Starling who have both reported meeting their BCR commitments, achieving over 8% market share on business current accounts. However, given the tendency of SMEs to use these solutions as secondary services it’s highly likely these numbers don’t tell the full story. It would be very interesting to get a deeper dive into what these accounts look like, but that info doesn’t seem to be forthcoming. 

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Progression, not regression

There are a multitude of reasons as to why this might be, but one thing that’s certain is it hasn’t been caused by ‘excessive’ regulations. Despite the musings of an all-party parliamentary group last summer, it’s very clear that regulatory hurdles have not stifled digital only neobank growth. Since then, we’ve all watched examples from across the pond of ineffective regulation in action and I’m sure nobody wishes to follow suit. 

Put simply, the UK’s regulatory framework is among the best in the world and should not be weakened in order to help companies that have already received generous backing through schemes like the BCR. If digital-only neobanks really want to capture a larger chunk of the SME market, then they should instead focus on providing solutions to the long-standing challenges that businesses of this nature face. 

I’d argue that while SMEs come in all different shapes and sizes, they often struggle with the same issues. Chiefly, SMEs want banking solutions that help them to pay and get paid, alleviating issues around late payments. It’s use cases like this where SMEs are not getting enough value from digital only neobanks and need more support. Hopefully, by highlighting and dispelling some of the common ‘myths’ we can begin to change that situation.