Following the release of its white paper on the challenges Small and Medium Enterprises (SMEs) are facing during the current economic climate, BankiFi CEO, Mark Hartley, provided insight on how SMEs can access the relevant banking services to help them in their time of need. 

Payment Expert: Firstly Mark, what are some of the primary reasons why banks are unwilling or unable to provide the right tech support to struggling SMEs?

Mark Hartley: It boils down to two main reasons: the cost of service and the need to focus on compliance. Banks are being challenged by regulators to uphold an increasingly large number of measures, which has clearly affected their ability to provide relevant services to all. 

Take for example the Financial Conduct Authority’s (FCA) introduction of a new Consumer Duty last year. That was a game changer for banks and has made it a requirement to make sure they are servicing all customers fairly, and not just pedalling products unnecessarily. This means a lot of internal spending on people and processes to ensure the correct checks and balances are in place, thus preventing them falling foul of the regulation. 

These same regulations cause further challenges for bank resources which are already stretched and under pressure within an ever-changing economic landscape. With certain key metrics to hit and priorities set, the SME customer seems to be falling down the list of priorities for banks, with retail customers always seeming to receive preferential treatment. This approach severely limits the level of service SME customers receive. 

All of this is very disappointing, especially when you see some of the services being offered by non-traditional financial institutions that are tailored to SMEs. What you’ve seen in the field of fintech is that the demand for these services is there, and that’s something that shouldn’t be overlooked. Quite frankly, if banks aren’t willing to respond to this demand and meet the needs of SME customers, then others will do it for them. 

PE: How accessible are tech banking features such as Open Banking to smaller businesses, are there other alternatives to help them enhance their finances further?

MH: On paper, Open Banking is very accessible to smaller businesses, but the uptake depends on banks informing customers about the services on offer, which they are often reluctant to do.  

This issue has been exacerbated by the consumer duty regulation I referred to earlier. Until banks start communicating the value and benefits associated with Open Banking, the true potential of it will not be realised. 

PE: With many merchants calling for a slash on Mastercard and Visa payment processing fees and MIFs, do you believe this could accelerate businesses looking deeper into alternative payment methods? 

MH: Right now, over 50% of all payments are made via cards in the UK, and these payments are typically controlled by the payer, not the payee. Ultimately, while it is more expensive for the payee to accept cards, it is the payer that determines the method of payment. 

Card payments offer the payer ease of use, protection and loyalty schemes, so there’s little incentive for payers to adopt alternative payment methods, but that’s not to say that the long-term shift would be impossible. If a tech giant such as Apple were to adopt a method like A2A payments for Apple Pay, then the payer experience would remain the same and so adoption is unlikely to be an issue.  

The fee structures between Apple and the Merchant would of course need to be worked through, appealing to the merchant more than the card model of today. As well as the fee structures, alternative payment methods would also need to encompass the protections and loyalty schemes to create a genuine like-for-like service.   

PE: With the downward economy continuing to pay a heavy toll on businesses, in particular SMEs, what are some of the best cost-cutting measures you have identified to help those businesses struggling to maintain their finances?

MH: Many people assume cost-cutting is the way to go right now, but this way of thinking often misses the mark. The truth is that many small businesses have already cut everything they can afford to lose. As such, it’s hard for SMEs to find new areas to limit spending without being forced to reduce staffing numbers, or other aspects critical to their survival. However, that doesn’t mean the battle is totally lost. 

One of the most important things right now is helping small businesses to get paid on time. It’s not fair for payees to bear the brunt of the payers’ cashflow, and yet it’s been allowed to happen for years. That’s why initiatives like the Prompt Payment Code are so important, as they help to ensure that SMEs are being paid on time. Ultimately, this should be happening regardless of the economic pressures that SMEs are facing.

The same principles apply to those operating in the United States. Although payment systems in the US are different to those in the UK, the challenges remain the same; saving time and getting paid on time. 

Through BankiFi US, we are addressing those two key issues for the American SME community. Our suite of solutions now supports US payment methods and we have partnered with US banks, as we have done with those in the UK. 

PE: Lastly Mark, and thank you for your time, coming out of the current economic crisis the world faces, do you anticipate a proliferation of SMEs leaning more towards third-party banking providers and growing less dependent on traditional banks?

MH: During economic downturns, long-term, traditional players are often seen as a safe haven. While we may have seen the unfortunate downfall of Silicon Valley Bank recently, far more value has been wiped from the valuations of tech companies than traditional banks in the past year.

To this end, there are still a lot of reasons to believe trust in traditional financial institutions will maintain through the crises we’re experiencing right now. 

The banking sector is in a much better position than it was in 2008, and customers are more protected than ever before. In places like the US and the UK, there are now far more rigid regulations in place to protect bank deposits. It might seem logical for SMEs to lean more into third-party banking providers in response to this crisis, but it’s probably more likely that they will stick with what they know, and what they can trust. 

Ultimately, the same protections that have been afforded to traditional financial institutions are unlikely to be afforded to alternative providers. So, while they might be able to offer services more tailored to the needs of SME customers, it’s very difficult to think companies of this size could put their full trust in them. 

Right now, with everything that’s going on, I’m sure that reliability and trust will be at the top of the priority list for SMEs.