Big Bank Collaboration Not The Inevitable Path For B2B FinTech Firms, Qonto Says

In some markets, new entrants into the financial services (FinServ) market went from bank competitors to bank collaborators, seemingly overnight as traditional financial institutions (FIs) realized the potential in acquiring FinTech firms to bolster their own services.

However, the competitive spirit isn’t gone, particularly in France, where challenger bank Qonto operates. The company, which recently raised $23 million for its services targeting freelancers and small businesses (SMBs), was formed as a direct response to what Qonto Co-founder and CEO Alexandre Prot described as poor customer service and lackluster products offered to small firms from large, traditional FIs.

According to Prot, challenger banks have, “of course,” caught the attention of banks in France (and elsewhere), waking them up to customers who are no longer willing to accept subpar experiences with their banks. That’s particularly true in small business banking, Prot told PYMNTS.

One of his biggest gripes with how traditional FIs work with small business clients is in customer service. Prot noted that these banks may have misconceptions about what their SMB customers actually want, even when they’re making an effort to improve their customer service offerings.

“I think that most banks say that clients want to have a sophisticated relationship manager — and I think that is totally false,” he said. “What they want is a clear and fast answer to their questions.”

Customers, including small firms, would prefer a fast answer from a bank representative they don’t know, rather than wait hours or days for a response from their designated relationship manager, he added. It’s one of several areas of traditional banking that struggles to adapt to the contemporary needs of entrepreneurs and freelancers. So many FIs today are designed for bank representatives to manage a portion of their clients, and it is difficult for these banks to adjust their setup to focus on speed and clarity of customer interactions, rather than familiarity between a client and representative, Prot said.

“It’s one key mistake traditional banks are making, because the way they have been built is very difficult to change overnight,” he continued. “They have branch staff they need to dedicate to something. Having a portfolio of 100 companies is not the most sufficient way, and it’s not what the clients are looking for.”

Small businesses’ dissatisfaction with big banks is no secret. Last year, researchers commissioned by Fraedom found nearly one quarter of banks “fail to prioritize [SMB] needs.” Only 12 percent of survey respondents agreed that their bank fully met their business requirements. The influx of FinTech firms and challenger banks — particularly across the U.S., U.K. and Europe — has made it easier for those dissatisfied clients to switch providers.

In a separate survey conducted by FIS last year, 14 percent of SMBs said they have already switched their financial service provider, and more told researchers that they plan to do so within the year. Larger multinational banks scored lowest in terms of satisfaction ratings, compared to regional and community banks, though the report did not include FinTech firms and challenger banks in the analysis.

Still, this trend is exactly what Prot said he’s seeing in France, as more small firms challenge their banks after having a better experience somewhere else.

“We’re not under the radar on the French market. Traditional banks know us,” he said. “They have clients closing their accounts and coming to us, or keeping their existing accounts and moving part of their activity to Qonto.”

Despite Qonto’s growth, Prot acknowledged that the company and other challenger banks like it have not yet made a meaningful impact in terms of market share. So, while traditional FIs are taking note of these competitors, they are not exactly worried.

As this scenario plays out in other jurisdictions, banks have turned this acknowledgement of FinTech competition into an opportunity: Acquiring or partnering with these players means those traditional FIs can retain their customers and offer the innovative, digital solutions their clients want without having to build the technology in-house. In the U.K. and Europe, initiatives like PSD2 and Open Banking foster bank-FinTech collaboration, enabling customers’ data to integrate between traditional and alternative service provider platforms.

However, it is not the inevitable fate for all FinTech firms. While Qonto can integrate with other accounting and invoicing platforms, and though the company already collaborates with Treezor to facilitate payments, Prot said a direct collaboration with a big traditional bank is not presently in the cards for the company.

“We feel partnering with a large bank will only slow us down,” he said, adding that the company is focusing on developing its own products and services. When the firm announced its latest funding, reports noted that Qonto is also looking to lessen its reliance on Treezor, choosing instead to invest in the development of its own payments infrastructure.

That doesn’t mean Qonto and other challenger banks are settling for the position of rival to large FIs, however. According to Prot, there is room for everyone, particularly as Qonto is not offering all services that a freelancer or small business may need, like bank loans.

“It’s quite likely for some companies to have both a traditional bank and another challenger bank,” he said. “We’re not necessarily trying to be a complete substitute for a traditional bank. Small businesses can get the best of both worlds.”