Fintech Insider Podcast by 11:FS
00:04:41 · Valentina Kristensen, David Barton-Grimley
[00:04:41] S4: Hi. Thanks very much for having me on. Yafen Rui, who's not familiar with Oak North, we launched in 2015 as a neobank focused on supporting entrepreneurs. To date, we've lent about £10,000,000,000 to what we would sort of call the M of the SME or commercial customers. And actually, published a report earlier this week with the Social Market Foundation looking at the barriers to enabling growth businesses on scale ups in The UK and how we can... Some recommendations about how we can overcome those those barriers. [00:05:14] S0: Brilliant. It's definitely a topic that everybody's talking about, the future of commercial banking, which is why we're here to... Today. So thanks everybody for joining. Let's let's dive in. So let's start with a broad look at the commercial banking landscape. So as I said in the introduction, you know, technology is playing an increasingly central role in the way that banks are doing business, and we're hearing this both from incumbent banks, new fintechs, big commercial businesses themselves. So it'd be good to talk a little bit about this. Valentina, I'm gonna go to you first because I I feel like your experience in with Open North as well has got a good broad view of commercial banking customers. What what do you think are the primary digital needs for commercial banking services? What are you hearing from your customers?
00:05:58 · Valentina Kristensen
[00:05:58] S4: Yeah. So I think if you look at the the market as it is today, you've obviously got the incumbents, you know, and still about 83% of businesses bank with one of the big five banks. So there's still a lot of work to be done for near banks like Oak North. And, you know, the pain points are all the things you normally hear. It's very slow to open an account. You know, there's often a very disjointed experience. You're not speaking to the same relationship manager. It's very hard to see, you know, which payments are going where. It's very hard to sort of put controls in place so that, for example, if you want, you know, you've got a business credit card, you don't want, you know, everybody in the team to have access to it. You want to put certain controls in place. All of those things are pretty painful with the incumbents. And then if you look at the neobanks and most of the neobanks, they started with retail propositions. And then they, you know, and maybe with the exception of Tide. But then they've sort of done retail plus, or very much the sort of small micro business. So their propositions are built on apps and automation, which are fine for individuals like you and me, and fine for small and micro businesses where the needs aren't necessarily that complex. But once you get to that $12,000,000, up to 100,000,000 revenue business, suddenly you might have much more complex corporate structures, you might have entities in different locations, you might have multiple ultimate business owners. And that's where there's this gap where the businesses aren't being well served by either the incumbents or by, you know, most of the neobanks. And this is really where I think, you know, not only digital, but it's sort of also hybrid because I think the... There's a need for certain, you know, certain products and services that those customers need. There's also a need for a relationship. Even if that's, you know, digital, it's still a human plays a very important role as well. So I think it's about looking at the business and then saying, what's the need? And then deciding on the best approach for that need.
00:08:02 · David Barton-Grimley
[00:08:02] S0: It sounds like there's a huge amount of complexity complexity in running a global business. And the more global you are, the more complex your supply chains are. I suppose in some ways, the more complex your your needs are. We've got a really interesting statistic. A 100% of respondents in the EACT treasury survey 2023 cited cash flow forecasting as a priority with tech infrastructure and replacement of IT tools also ranking really, really high. And, actually, I'd like to go into this a little bit. Valentina, what what are you... Are you hearing the technical infrastructure being an issue as well? I mean, it's great for us as a business to use all of these wonderful tools that are available to us, but how can it integrate with the systems and the and the stack that we have?
00:08:45 · Valentina Kristensen
[00:08:45] S4: Yeah, exactly. I think, you know, so often businesses of this size sort of just get presented with a menu of things, you know, a menu of products and services, a menu of tools that they can use, and a lot of them might not be applicable to their business. They might be completely irrelevant for their business. But unfortunately, the banks simply don't have the time, the resource, the willingness or the necessarily the capability to sit down and say, for this business, these are the kinds of things that I think based on their jobs to be done need to be presented to them. And that's something that we really try to do. You know, at OpenOff, we sort of try to understand what is it that the customer needs, and what are their pain points, and then work backwards from there, rather than sort of presenting a menu of options. You also have to think a lot of these businesses, whilst they, you know, I mean, as I say, it's sort of the 1 to 2,000,000 revenue up to 100,000,000 revenue. A business that has $23.04, 5,000,000 revenue probably doesn't have a hugely sophisticated finance team. They might have an accountant they see once a quarter, maybe they have a finance director. Once you got to the higher turnover, then obviously, you might have a CFO and a much bigger finance team. And then of course, the sophistication and the tools you might be using will be much better. And I think that's where trying to work with fintechs that have solutions that are embedded with other fintechs. And I mean, we work with a number of fintechs at Oak North, really to try to create that optimal experience to the customer, not only at the front end, so the products and services they see, but also at the back end, the things they don't see, to try to make that experience as seamless as possible.
00:10:23 · David Barton-Grimley
[00:10:23] S0: It's always interesting to hear just how complex these needs are in commercial banking. And and just on your point, Valentino, about taking a a leaf from the book of retail banking and really understanding how, you know, customers have jobs to be done, and we just need to figure out what those jobs are and create services in order to do that. Sarah, I'm gonna come to you on this. How how do you think the needs of commercial banking differ from other retailers? Are there... What what what are the similarities and differences you would you would say broadly?
00:10:51 · Sarah Kocianski
[00:10:51] S3: I mean, I think that the first thing to mention is that everybody means something different by commercial banking, you know, to Val's point. She's... And also serves the M in the SME, but, you know, what what is an S? What is an M? What is a, you know, a a large scale enterprise? And I think sometimes that can kind of be a little bit stretched. Actually, you're trying to serve these customers, have to have an idea, a definition in your mind of exactly who you're trying to serve. I think on the larger sort of end of things, what we would call enterprise banking, if you like, Some of the needs that are different are the fact it's truly the scale, the size and the scale. You're moving a lot more money. You're often moving it a lot quicker. That comes with more complex compliance requirements, and then that slows things back down again. So you're trying to do more things, you're trying to do them more times a day, and it's more complicated because the legal team needs to be involved in everything. That prevents you from doing a lot of stuff in real time or has historically. As already touched on, the bigger you are, the more complex your IT system is. It's just almost a statement of fact. I think also we shouldn't lose sight of how old some of the ERP systems are that people are using out there, the enterprise resource planning systems. I also did a report on this a couple of years ago, just looking at treasury management. And I was shocked to find out just how many companies that are bringing in tens of millions of dollars, pounds, whatever you want to say, of revenue are actually using a whole lot of spreadsheets as well to try and manage their accounting and their finance functions, which is only mildly terrifying. So if you're going to try and serve them, are you going to access that information? How are you going to digitize that? How are going find their needs? And then as has already been touched on and Pranav will know a lot more about this than me, geography, you know, the bigger you are, the more international you are. You're moving money in different currencies, makes cash flow management really difficult. You have to start thinking about FX management.