EXCLUSIVE: “Yes, Boss!” – Adi Engel, vcita; Oliver Prill, Tide and Kat Robinson, Metro Bank in ‘The Fintech Magazine’

The influx of small business banking remedies can feel like a bunch of solutions looking for a problem. We asked Adi Engel from US-based management app vcita, and the UK’s Oliver Prill of SME financial platform Tide and high street operator Metro Bank’s Kat Robinson, what SME owners would want if you asked them

What a sole trader or small business owner needs in terms of tools and services to adapt and thrive in an online world can seem obvious to a digital crusader: a bank account that integrates with accounting software, certainly; low transaction fees are a no-brainer; and then they should surely be taking advantage of networking opportunities and be shown examples of financial best practices to help their business grow.

But what do small business owners actually want?

Well, often it’s simply to be left alone if they’re being crushed by workload, or they’re in a battle to survive, and many cling desperately to tried-and-tested (but analogue) methods just because they don’t have the head space or time to learn a whole new set of processes. It’s also worth remembering that they’re far from being a homogenous group: size, aspirations, and therefore, needs, differ markedly, although an impatience with digital technology and a reluctance to spend time engaging with it can be a uniting characteristic!

For years, pressure groups such as the Federation of Small Businesses have criticised what was perceived as a complacent business account offer from incumbent banks in the UK. Now, the growth of fintechs, challenger banks and open banking regulations are turning a digital famine into a feast of choice – the challenge is proving to be how you put products in front of bosses and get them signed up. Frustration is a common reaction to being told what they must do, says Adi Engel, chief marketing officer for US-based small business management app Vcita, which aims to improve efficiency by automating processes such as appointment and client file management and invoice chasing, alongside ‘robust’ marketing features. It’s a global company with 1.5 million registered users, including customers in the UK, so it’s obviously getting a lot right.

“But I see frustration with us telling them ‘you should digitise, you should digitise’,” admits Engel. “I also often see their patience with models that are now legacy concepts, because people don’t like to change – it’s easier for them to stick to pen and paper than try this new thing.

“Business owners typically just want a good solution; they don’t want to be bothered with competitiveness and they don’t have time to compare rival systems to find each one’s unique properties.”

Oliver Prill, chief executive of Tide, among the UK’s first dedicated banking service providers for businesses at the smaller end of the SME spectrum, understood that from the start, which is why he began by looking at what bosses do – not what they may or may not want – and then tied all the things that could be useful to them to one platform.

For Prill, the notion of business banking has always been problematic for micro-firms, because business management is typically patched together by one person making it up as they go along. Vcita’s own research suggests that 90 per cent of small business owners directly provide the service their firm delivers – be that plumbing, hairdressing or fixing IT.

Prill says: “A small business doesn’t do ‘business banking’. What a person does is write an invoice, maybe factor the invoice, chase the invoice, then account for the invoice – attaching it to the payment.

“People aren’t in business to do finance and administration. It’s just a necessary evil and, maybe with the exception of accountants and financial advisers, almost all business owners I’ve spoken to don’t like their finance and admin. Many are not particularly good at it and don’t have the time for it because very often it’s not different people doing these jobs – one person has created a workflow which cuts across different products, many of them technically outside of banking.

“The whole thing is broken and the way we think, at Tide, that this is best solved, is by connecting every step of a process.”

Tide’s key offer as a licensed e-money provider, working with ClearBank, is a platform that’s been tailor-made for lone-wolf freelancers who are happy to remain that way, through to businesses in the early stages of scaling up. Among its most attractive benefits are invoice handling, low charges and integration with accountancy software. Customers can also find blogs on business education, such as guides to cash flow – it very much aims to be a small business champion. Tide is, and always has been, an online service, albeit with telephone support; Metro Bank, on the other hand, prides itself on having been the first UK bank to open walk-in branches for 100 years in, when it launched in 2010.

There are local business relationship managers in its ‘stores’ and a range of physical services targeting sole traders and SMEs, including seven-days-a-week opening, which is particularly handy for retailers. The bank focusses heavily on what it can offer clients face-to-face, such as networking events at branches. And all this alongside a growing range of digital SME services.

Metro Bank customer experience director Kat Robinson agrees there’s no ‘one-size-fits-all’ answer to the question of SME banking, but there are obvious common themes when running a small business. A clear one is to recognise that back-office functions aren’t provided by a back office.

Robinson says: “For years, banks have neglected small businesses and their needs. Running one is incredibly hard, and there were lots of things people looked for their banks to do, that they weren’t doing.”

She agrees with Prill and Engel that their top priority is – and probably always has been – management of cash flow. And, as disruption to everyday life caused by COVID-19 continues, and state support programmes for businesses are withdrawn, keeping it flowing right now is perhaps more of a headache than usual. A report from the Federation of Small Businesses in January warned that 440,000 of the UK’s estimated 5.5 million small businesses could fail in 2022 because owners feared a growing late-payments crisis threatened their businesses’ existence.

“For small businesses, you can tie everything to cash flow,” says Engel. “It is about ‘how can I better utilise my time to service more clients?’. And ‘how am I chasing them for their payments?’. Or ‘how am I creating a financial buffer for myself’? and ‘how am I recording all of this?’. The digital solutions that are evolving are around having that 360-degree view of cash flow.”

Prill adds that businesses have different immediate needs, which are dependent on the level of cash they hold. He splits firms into three groups – the cash-rich, the creditworthy and the uncreditworthy.

He says: “For the third with lots of cash, what they need is digitisation, it’s about saving time. For the third that are creditworthy, cash flow issues mean making sure they can leverage the credit that is available to them for both working capital and investment purposes. Then there’s the uncreditworthy, for whom, regardless of what people say, credit is not the right solution because it would make matters worse. But they can be helped with cash flow by using tools and addressing processes to give them a better view of their position to effectively manage it.

“Even though they are inherently uncreditworthy, a lot of times what kicks them out is the unpaid invoice, or the invoice not written on time, the invoice not chased, or even when expenses are paid too early. So, while we see very different needs for support for those three segments, cash flow cuts across all of them.”

This breadth of needs is reflected in the fact that Vcita’s mobile app has more than 200 individual features for SME owners. “While traditional CRM software is built to service the needs of enterprise businesses, Vcita’s platform was designed with small businesses in mind so workflows and tasks can be integrated and more efficiently handled,” says Engel. “For example, a sales opportunity is delivered by sales to the legal team, then goes to billing, and so on.”

“For a sole trader or a small business, we have to understand they are doing all of this within a few seconds, they’re making snap judgements. I was once asked whether our product had a lead-scoring mechanism in it and I said, ‘yes, normally it would be the business owner picking up the phone, listening to the caller, and deciding ‘OK, yes, I can serve this person. I’m free on Wednesday’. So, we’re condensing a lot of decision-making, and various business models, into a very small app.” Getting time-poor bosses to make the leap to digitising processes means demonstrating why it’s useful and relevant, Engel adds.

She says: “We hear a lot of people saying digitisation has a high entry point, and people who are less technically savvy won’t get it. But I tell them about my late grandparents using WhatsApp. As soon as they realised that WhatsApp was a way of interacting with their grandchildren, suddenly there was a clear value to it, and they were very happy to engage with it.

“So, from a customer experience perspective, when we ask SMEs to set up a lot of different tools, and upload a lot of data into them, have we actually told them why? If we say ‘this is where you’re going to have a list of all your clients and, because you are offering them services, this is how you’re going to ask for a payment’, the value to them is clear. It can still be difficult to work on screens all the time, but people will engage when they understand it has improved their ability to get paid and given them extra time, which improves their work-life balance.”

As in many other areas of life, Prill believes the pandemic accelerated a change in attitudes and practices among small businesses.

“Tide started off attracting the more digitally-savvy businesses; by the time COVID began, more middle-aged, established businesses were joining us. But the pandemic meant two other groups jumped the hurdle,” he says. “One was cash-rich businesses – those that had been using a high street bank because depositing cash next door was a great proposition. But, during COVID, many of us didn’t use cash, and walking into a bank might not have been the wisest thing.

“Then, also, with the sudden growth of e-commerce, more mature business owners, people in their 50s, 60s and 70s, embraced digital and took up current accounts with us. It was a big step forward and it will be a lasting trend.” Engel questions whether all behaviour changes made in the name of public safety, such as giving up the use of cash, will stick, since not everyone will have willingly adapted. And Metro Bank, which has been a flag waver for ‘human relationships in banking’, will no doubt hope the end of lockdowns means it can once again capitalise on its branch network.

Robinson says: “It’s absolutely right that we improve customer experience and take the burden away from small businesses by taking it on ourselves – making it easier to do their banking and manage their business. But, as well as offering budgeting tools and so on, I also think there’s something around how we succeed together. That can be through connecting them to other businesses like them, providing support and events in our stores, and through the partnerships we have.”

One of those is with Enterprise Nation, a provider of advice, online tools and virtual events to small businesses.

“I believe there’s something about supporting small businesses that moves beyond just saving them time,” adds Robinson. “Small businesses are increasingly facing a regulatory burden of their own.

In the UK, changes such as Making Tax Digital mean they will expect more of their banks, I think, quite rightly. They’ll want help navigating digital tax reforms.”

The Making Tax Digital programme, which has already begun for UK firms with a taxable turnover above the VAT threshold of £85,000, will cover all other VAT-registered firms from April. Digital income tax filing is due to follow in 2024, and digital corporation tax filing in 2026. That regulatory shove into the world of digital bookkeeping will force the hand of analogue die-hards – and inevitably raise expectations of what firms such as Metro Bank, Vcita and Tide should provide. Prill is aware that, as in consumer banking, the business account holder is a moving target.

“As people have better experiences across the digital universe – by that I mean everything else they use, such as WhatsApp – they need less time to learn things. “But then everything has to work,” he warns. “The standard is very high. At Tide, we’re already seeing raised demands rather than new demands.”

The UK Government’s long-term ambition has been to increase market competition among financial service providers for small businesses. And, in a review published in January, it said that ‘while still strong, there are signs large banks’ historic advantages are starting to weaken’. In fact, they relinquished seven per cent of their share of micro-business accounts between 2019 and 2021, taking their market dominance down to 67 per cent. But breaking the stranglehold of incumbent banks remains a challenge. It’s taken Tide almost seven years to build its customer base to 400,000 – an impressive seven per cent of all UK SMEs, compared to four per cent in 2020 – but startups that had no previous banking relationship were responsible for nearly all that growth.

At the beginning of this year, Tide showed it was willing to rethink its own business model by taking advantage of open banking to offer its accounting products to customers of rival business banks, and they will soon get access to invoicing, expense management, payroll and credit services, too, under Tide Open Access. The company is also now focussing on the biggest SME economy in the world – India, having opened an office in Hyderabad, with a planned launch this year.

“The old notion of the universal bank, and having one model, is a thesis we don’t subscribe to,” says Prill. “There will not be one model that succeeds, there will be a variety – if not, there needs to be further government intervention in the market.”

This article was published in The Fintech Magazine #23, Page 40-41