SME Banking and the Three Musketeers

D’Artagnan: “It is too much! I cannot accept it. Athos, you take it.”

Athos: “No, for the Comte de la Fère it is too little; for Athos, too much.”

We have just signed a new deal with a customer here in the UK (hurray!) and incidentally both us and our new client got to taste how SME banking works for a start-up company. I thought that our story deserves a short review, so here it is.

First, some brief background: Metryus has been incorporated in the UK for a while now, but we only had our accounts at Transferwise, which is not a bank technically speaking. They use Barclays for the current accounts and generally do an excellent job, especially for a business like ours where we receive and send lots of international transfers.

Since our business in the UK has started to grow, I thought that I should open another business account locally, and decided to go ahead with “the emerging leader in SME challenger banking” who advertises “open(ing) a business account in minutes” on its front page. There were a few reasons I chose this institution. First, I just wanted to try a new service from a fintech challenger focused on SMEs. My previous personal experience with Monzo and Revolut was generally positive, so I was expecting a similar level of service for my company. I was also thinking ahead, planning the end-of-year activities for accounting, taxation and reporting. These tend to be quite tedious and require a lot of admin effort so I thought that a specialised bank might be of a better fit.

Our client is a start-up company recently incorporated within a larger holding group. This group has been active for many years, and while it has a few companies in the UK, its headquarters are abroad. They have opened an account with another “leading digital bank”, who has been constantly in the news as one of the best for SME banking and just been awarded a £100 million grant from the Capability and Innovation Fund to further develop their offerings for SME market.

Now, a simple matter of our client receiving the funds from its parent group and paying us the agreed service fee. Or not so simple?

Our client’s account was indeed opened within a few hours but got frozen again immediately as soon as they received the money from abroad (it should be clarified that “abroad” is not Afghanistan or Somalia, but a country in Western Europe, part of the EU). It took them a whole agonising week proving the identities of everyone involved, nature of the business, the colour of hair, etc. to have the account unlocked and working, able to initiate the payment.

On our end, things were even worse. After you submit all the registration docs, you are contacted by a member of banks team (KYC/AML?) who ask you a couple of questions and straight away tell you that it will be another 72 hours before the account is open. Once three days pass, they ask you something else. You answer and wait again. The cycle repeats multiple times. By then I have sent them the complete history of our transactions, scans of all the contracts, scans of invoices, scans of my registration with the local council, utility bills (twice), details about my personal bank account (twice). After ten days, I received what sounded like a winning a lottery message: “good news! Your new account is up and running!” …. However, it has been another five days now, nothing changed, the app is not active. In total it has been 15 days now and I still don’t have access to my new fantastic and innovative bank account.

It could well be an isolated experience, but I believe it highlights the general state of SME banking, both in the UK and globally. I can only summarise it with the quote by Athos in the beginning of this story:

“for the Comte de la Fère it is too little; for Athos, too much”

While the UK SME segment itself is enormous (£1.9 Trillion yearly turnover, £14 Billion of yearly banking revenue — on par with corporate segment) it always falls between the retail and corporate and never gets proper attention, regardless of the country. For the retail guys it’s too complicated, for the corporate guys it’s too much work for a much smaller reward.

Here is another quote, this time from a recent study by Ernst and Young:

“Whilst attention in recent years has been on serving the consumer market, the SME market generates c.£14bn in banking revenue and 10%–15% return on equity (ROE) — representing a significant opportunity for existing and emerging financial institutions… banking industry has recognised a significant unfulfilled opportunity within SME market.»

SMEs require many things to run their business in terms of managing finances: basic transactional banking, international transfers, account aggregation, cash flow forecasts, liquidity support, accounting and taxation, invoice generation and follow-ups, POS/e-commerce infrastructure, etc. Right now, to get all of this you need a minimum combination of 4–5 providers, a couple of these would be banks or challengers, others would not, and the SME would need a lot of time connecting them. While there are some new players emerging, notably Mettle by NatWest and Asto (by Santander), SME banking does seem to be still way off of what it could be in terms of serving its clients holistically. It will require a lot of push by the fintech development teams like our Metryus, incumbent banks and the challengers to get it from its current state to the more productive and supportive service.

To all those involved, let's do it in the spirit of the Musketeers: “All for one and one for all, united we stand divided we fall.”