21 October 2017
Luka Ivicevic

Luka on Banking and SMEs

Luka Ivicevic - Penta Business Banking

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Fintech innovation and startups

Fintech innovation and startups

Disruption, destruction, harmony and creation; Fintech’s new frontier – a place to discuss the cutting edge of innovation.

WHAT 100 STARTUPS WANT FROM THEIR BANKS

09 May 2017  |  9958 views  |  0

Business banking sucks. From accounting to invoicing and the awful customer service, business banking is painful.

Our team had loads of pains with business banking. But did other people feel the same way that we did? 

We sat down with 100 businesses face to face for 45 minutes each to find out.

We wanted to figure out what bothers businesses with their banking. Was it the branches? Opening a bank account? The paperwork? How about sending money domestically or abroad? Accounting? Loans? Invoicing? Corporate governance? Costs? Cash-flow analysis? What was the real problem?

Here are our results. A gift for the fintech and banking community building products for business below 30 employees.

Hope it helps others as much as it has helped us.

I’ll start with a breakdown of how we organized the questions. Don’t care? Skip to the results. However, I’d recommend understanding how we got to these results in the first place. Maybe we’re wrong. Correct us in the comments.

BREAKDOWN

Company Profile

We interviewed CEOs, CFOs or employees that do the business banking. 50 were in the UK and 50 were in Germany.

The businesses were mainly high-tech companies (startups), 3–30 employees below 2M in revenue. Surprisingly, our results didn’t drastically change if the company wasn’t high-tech. It changed if the founders weren’t.

Method

Our goal was to keep the questions unbiased and scientifically designed to give us the most objective answers possible. We sat down and made 10 hypotheses and dozens of sub questions about business banking that we wanted to validate or disprove based on our previous experiences. We did not tell the interviewee our hypotheses. Instead we asked open questions about their past experiences and behaviours. None of the questions led to a “yes or no” answer. Instead, the questions allowed the interviewee to tell us about how they used the banking products and how they felt in the process of it. I’ve left examples of the questions below.

We refused to tell the interviewee what problems we were trying to solve before or during the interview. We wanted them to be unbiased and honest.

How We Found Our Interviewees

We went to seven co-working spaces asking people (who do the banking) if they had time to answer a few questions. We also tapped into our network to find people willing to help.

Scoring Method

During the interview we took notes and wrote quotes. After the interview we rated the hypotheses in order to disprove or validate the hypotheses. Based on the answers, we rated each hypotheses as: “Pain”, “Little Pain” or “No Pain”.

Quotes

All quotes are real and taken directly from the interview anonymously.

THE RESULTS

Here’s an overview of the questions we asked. For the purpose of this article, we have rephrased the questions.

  1. Is opening a business bank account a pain?

  2. Are legacy bank interfaces hard to use?

  3. Do businesses want a faster way to send/receive money?

  4. Do businesses find receiving and dealing with banking paperwork painful?

  5. Do businesses/startups want loans?

  6. Managing expenses and allocating budgets is difficult and time consuming. Would business owners want to give out MasterCards to their employees if it were easy and safe to do?

  7. Accounting can be very time consuming. Do businesses want/use a software alternative?

  8. Sending money abroad can cost anywhere between 1–4% of the total transaction. Do business owners know that? If so, why don’t they find an alternative?

  9. Do businesses find it tedious to manually write up invoices?

  10. How do business owners and key employees feel about banking fees?

IS OPENING A BUSINESS BANK ACCOUNT A PAIN?

There’s no doubt how time consuming it can be. But how big of a problem is it really? Here are our findings.

“Tell me about how you opened your business bank account.”

GERMANY

Pain

56% of businesses found opening a business bank account a pain.

Small Pain

11% thought it was a small problem.

No Pain

33% didn’t find opening a business bank account a pain.

UNITED KINGDOM

Pain

50% of people thought that the process of opening a bank account was ridiculous. “I had to go to the branch 8 times in a time span of 10 weeks. It was exhausting. Don’t the banks realize that we have businesses to run?”

Small Pain

7% found it a small pain.

No Pain

43% didn’t find opening a business bank account a pain.

CONCLUSION

If you have a personal account in a bank, opening a business bank account can be quick; in a matter of hours or in a few days you can have a business bank account. However, when you can’t open a business bank account, it’s a massive pain because you can’t trade.

Overall, opening a bank account is a much bigger problem in the UK for businesses. In Germany, bank account opening takes a few days up to two weeks while in the UK it can take on average six weeks according to various studies.

ARE LEGACY BANK INTERFACES HARD TO USE?

Legacy bank interfaces are notoriously ugly and hard to use. However, are they that bad that businesses have trouble using them?

"Tell me about how you navigate your bank’s mobile/web user interface.”

GERMANY

Pain

80% found it hard to use their business banking interface: “Oh god, it’s terrible.”

Small Pain

20% didn’t think it is the easiest interface to use, but rather just accepted it.

No Pain

0% thought it was acceptable.

UNITED KINGDOM

Pain

25% found navigating the user interface a pain.

Small Pain

25% thought the interface was confusing, but were used to it.

No Pain

50% didn’t mind it at all. Barclays was especially complimented here.

CONCLUSION

Overall, UK business bank account interfaces are better and easier to use. However, Germany is in a bit of a design crisis… Here’s your chance PSD2 fintech startups!

DO BUSINESSES WANT A FASTER WAY TO SEND/RECEIVE MONEY?

Note: For UK readers, German banks don’t have an equivalent of the Faster Payments Scheme as in the UK. Payments can take up to 72 hours to arrive to the recipient in Germany.

“Tell me about when you receive or send money. Can you explain to me what the process is like?”

 

GERMANY

Pain

30% thought sending or receiving money is too slow.

Small Pain

30% wished it were faster but were fine with waiting.

No Pain

40% have absolutely no problem waiting up to 72 hours to receive money.

UNITED KINGDOM

Pain

0% thought sending money was slow. Because it’s not! It’s (almost) instant..

No Pain

100% considered it fast and immediate. Most UK businesses were actually confused that we asked this question!

CONCLUSION

Come on Germany, wake up!

DO BUSINESS OWNERS FIND RECEIVING AND DEALING WITH BANKING PAPERWORK TEDIOUS?

Most would think that nobody is a fan of receiving paper mail, or having to sign documents at the request of the bank a few times a year. We were surprised to find the following results.

“How do you feel about paper communication?”

 

GERMANY

Pain

50% were annoyed by anything paper based: “I don’t understand why I still get paper when I’ve opted in for paperless.”

Small Pain

30% didn't think it was tragic. They've accepeted it even though it is tedious to use at times.

No Pain

20% enjoy it. “The more paper the better. It helps me organize my business better.”

UNITED KINGDOM

Pain

50% felt the same way as the Germans.

Small Pain

6% don’t find it helpful, but are reluctant (or lazy or didn’t know how) to opt-out of receiving paper based communication.

No Pain

44% thought it’s helpful for organizing things. Strange considering most of what they do is all in the cloud!

CONCLUSION

Overall, high-tech companies are not big fans of paper. But there are startups that don’t mind and even enjoy paper based communication. Even if they’re high-tech.

DO BUSINESSES/STARTUPS WANT LOANS?

What would startups prefer: giving away equity or being in debt? In contrast to the other hypotheses, this question aimed to validate whether high-tech businesses/startups would be interested in taking a loan (factoring, line of credit, overdraft, etc.) For the purpose of this article, we have simplified the results.

GERMANY

Want a Loan

11% would be keen on taking a loan, have applied for a loan, or are currently operating off of a loan.

Undecided

22% were undecided whether they would take out a loan. This group was also not educated enough about loans and were keen to learn more if loans are a viable option for their business.

Not Interested

67% were not interested in loans. Instead they are boot-strapped or equity financed.

UNITED KINGDOM

Want a Loan

33% were interested in taking a loan or currently have taken out a business loan.

Undecided

7% didn’t know much about taking out loans. Therefore they haven’t considered it but were open to assessing if it’s a viable option for their business.

Not Interested

60% were not interested in loans and were running on equity financing.

CONCLUSION

High-tech companies were not too enthusiastic about taking out loans. They prefered equity financing. Not a big surprise. However, some were open to the option if they were more educated on how to take out a loan, the process and ultimately the speed of getting cash in the bank.

DO BUSINESS OWNERS WANT TO GIVE OUT MASTERCARDS TO THEIR EMPLOYEES?

Corporate governance can be a nightmare. And the only way to solve it (with your legacy bank) is by issuing credit cards to your employees with a credit limit. But issuing more than one card can be difficult as most banks will give you hell when trying to do so. Here are our results:

The results of this hypothesis strongly depended on the size of the company. In our findings, companies above 6 employees started to face this problem.

“Tell me about how you manage company expenses with employees.”

 

GERMANY

Pain

40% found expense management a nightmare and wanted an alternative. Surprisingly, they didn’t know of any alternatives.

No Pain

60% didn’t have a problem with managing expenses within the team.

UNITED KINGDOM

Pain

0% needed or noticed a problem with this in their respective company.

Small Pain

25% see the problem, feel it, but aren’t willing to make a big effort to fix it. Meaning they aren’t suffering that much. However, according to the companies interviewed an opportunity could arise for these businesses if they were offered to try it.

No Pain

75% haven’t ever thought about it before our interview and weren’t willing to think about it any further.

CONCLUSION

This was one of the more complex questions (therefore, harder to elaborate on in this article) as it dealt with: what’s the company’s employee setup? Is everyone a programmer except the CEO who’s running around selling software to business clients? If you’re interested to learn more, please email me at luka@getpenta.com and I can elaborate on this finding.

ACCOUNTING CAN BE VERY TIME CONSUMING. DO BUSINESSES WANT/USE A SOFTWARE ALTERNATIVE?

Based on our research, accounting was the biggest problem businesses faced with their business banking, as well as the most time consuming. Lastly, accounting tools are prevalent in the UK but are not as popular in Germany. There isn’t a dominant Xero in Germany. But there a few players gaining traction.

Accounting was by far the biggest problem businesses faced with their banking.

GERMANY

Pain

90% hated doing their accounting. “The scissors, the paper, the glue. What am I, in kindergarten?”

Small Pain

10% had little accounting related business to do, so they didn’t mind it. These were mainly non-high-tech companies or high-tech businesses that were less than 1 old.

No Pain

0% didn’t find accounting a problem.

UNITED KINGDOM

Pain

88% had the same reaction as the Germans. “Why is everything around me so high-tech while my accounting is the same as when my grandparents did it?”.

Small Pain

12% found accounting a pain, but were reluctant to look for alternatives as the amount of accounting was so small that it wasn’t worth paying for a tool.

No Pain

0% didn’t find accounting a problem.

CONCLUSION

From our research, a surprisingly small percentage of the businesses we interviewed used tools like Xero, Smacc, Sage or Geniac in both countries. However, even if they did, the tools lacked real-time synchronization with their bank account, so they still weren’t fully satisfied, which made them have to manually add information into their accounting software. We included this small majority in the small pain percentage.

SENDING MONEY ABROAD CAN COST ANYWHERE BETWEEN 1–4% OF THE TOTAL TRANSACTION. DO BUSINESS OWNERS KNOW THAT? IF SO, WHY DON’T THEY FIND AN ALTERNATIVE?

Sending money abroad can be extremely expensive. Especially if you’re sending large amounts in foreign currencies. We wanted to know if business owners were aware of the high costs and if they found sending or reconciliation difficult when doing business abroad.

 

GERMANY

Pain

70% had pains sending money abroad (at times they had to go to the branch to send it), or receiving it in a different currency as their bank made opening another currency account or FX conversion difficult. 70% was also aware that the fees were “outrageously expensive.”

No Pain

30% didn’t find it a problem as they only did business in Euros.

UNITED KINGDOM

PAIN

64% were aggravated with how much it cost them to receive or send the money.

Small Pain

14% had problems with the fees that they were paying and how long it took to receive the money. However, the pains faced were rare as the business rarely did business in foreign currencies and with foreign businesses.

No Pain

21% didn’t do business abroad, and if they did the amounts were small and they didn’t mind paying the FX or transfer fees. Most of this group also didn’t know how much they were paying in fees nor did they care.

CONCLUSION

Both German and UK banks charge large fees on international transfers or on FX rates. Opening a multiple currency account was also a hurdle for many businesses, making doing business with people abroad difficult. Lastly, many of the business owners are aware of Revolut or Transferwise, but they didn’t use it. Why? “I don’t want to have to download and use another app to do my banking.”

DO BUSINESSES FIND IT TEDIOUS TO MANUALLY WRITE UP INVOICES?

Manually writing invoices is tedious. Especially as you’re growing and scaling. Automating it can be the solution. But do all high-tech businesses feel that way? Please note: This includes businesses that already use a similar tool with an accounting software.

GERMANY

Pain

78% were deeply distraught with how they currently do their invoicing.

Small Pain

11% found it a small pain that they were not willing to seek a solution for.

No Pain

11% did not find doing their invoices manually a problem.

UNITED KINGDOM

Pain

20% of businesses found invoicing a pain and are looking for an alternative.

Small Pain

13% saw and felt the problem of doing invoicing manually as they’re scaling. However, they thought of it as a minor problem as their outbound invoice volume was low.

No Pain

67% didn’t find invoicing a problem: “how else am I supposed to do it?”

In conclusion, Germany had a much bigger problem with automating and managing the invoicing process when scaling.

HOW DO BUSINESS OWNERS AND KEY EMPLOYEES FEEL ABOUT BANKING FEES?

Being charged a hidden fee can leave a negative perception of your bank. But did people have problems with this? Was it even happening? Was transparency important to them? Were they being charged for products that they didn’t even use? Were they being overcharged for everything they use?

Are banks overcharging their business customers without the business owner’s knowledge? How do business owners and key employees feel about banking fees?

GERMANY

Pain

25% were dissatisfied with the way they were being charged. Especially for hidden fees or sending money abroad which could be 1–4% of the total transaction. The Germans were more angry with their bank’s lack of transparency when being charged for banking services.

Small Pain

38% saw it as a problem, but didn’t put too much effort into stressing about it as the amounts charged were small.

No Pain

37% didn’t have a problem nor did they care much how much they were being charged. They looked at it as “the cost of doing business.”

UNITED KINGDOM

Pain

43% felt that banks were charging them significant amounts and that they couldn’t do anything about it. Most were deeply dissatisfied.

Small Pain

0% were indifferent. All the British felt strongly about banking fees — one way or another!

No Pain

57% couldn’t care and didn’t mind the fees. And as the Germans, thought it was the cost of doing business as “we understand that banking can’t be free. Banks also have a business to run.”

Most of the people interviewed did not know how much they were being charged. They were only able to estimate it.

Final Remarks

A question for fintech startups and incumbent players. Is the solution to build a better KYC solution, cheaper FX and international transfers and other tools bit by bit on our own in-house? Or should we all partner with each other (accounting tools, fintech startups and legacy banks) to always be able to offer the most optimal financial and business solution? One company for a great KYC solution. Another for FX and factoring.

What does the latter mean though? Does partnering mean that we should cannibalize our existing products? Our whole business model? For new entrants and fintech players, there isn’t much cannibalization to be done. For the incumbents, it’s a different story.

Let’s face it. We all have the same goal. We want to make people’s lives easier. Which turns into higher customer service satisfaction, higher retention rates and loyalty as well as evangelism and everything that comes with that.

But how do we achieve that? In order for us to solve the above problems, we need to partner with each other. So that we could always offer the most optimal solution to customers.

We believe in partnering with third party developers and companies to build great tools in order to solve the above problems. We believe in cannibalization.

What do you believe in?





 

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