Unpacking Neobanks for SMEs — Chapter 4| 3rd-Party Integrations
Unpacking Neobanks for SMEs is an article series by Arival Bank analyzing the SME neobanking landscape from the lens of the user experience journey.
About Arival Bank
Arival Bank is an award-winning digital banking startup for international startups, freelancers and small businesses that are typically underserved by traditional and digital banks. Arival Bank partners with some of the hottest fintechs on the market to deliver a full suite of financial products and tools hand-picked to help you run your business.
If you haven’t done so, do check out our previous chapters here.
Chapter 4: 3rd-Party Integrations
Most SME neobanks integrate 3rd party fintechs into their platforms as part of their value proposition. Customers can use these integrations to better manage their business finances. But what is the user experience of utilizing these 3rd party integrations actually like? What are some areas of improvement for this integral part of the user journey?
In this chapter, we discuss:
- Why 3rd-party integrations: The Fintech Banking trend.
- Differentiating Integrations and Partnerships.
- Why more integrations does not always mean more value added.
- Open APIs.
The Fintech Banking Trend
Let’s think about the daily financial operations of a modern small business. SMEs tend to use Stripe and Paypal for accepting and disbursing payments, SumUp for its mobile point of sale (mPOS) hardware, Quickbooks to settle its accounting needs, as well as countless other fintechs in areas such as payroll and loans.
Fintech started out with the goal of democratization and competition with legacy banks in specific verticals. If we were to decompose a bank, there would be a fintech company that can substitute each service the bank provides. For SMEs, this results in a chaotic and fragmented financial management experience, filled with different logins, non-aggregated data, and opaque movement of money. There is a lot of friction involved in shopping around for fintech services and products tailored to their day-to-day business needs.
Many SME neobanks attempt to alleviate these problems by gravitating towards fintech banking, i.e. the rebundling of different fintechs from various verticals into a singular unified banking platform. Ideally, SMEs can log into a single banking platform and access their favourite fintech products with just a few clicks.
I quote our CEO Vladislav Solodiskiy in his book “The First Fintech Bank’s Arrival”, in which he succinctly explains the motivation behind fintech banking.
“The fintech banking concept allows banks to go back to the very essence of banking: storing money on an account. The idea is not to reinvent the wheel or compete with other fintechs, but rather develop meaningful partnerships to produce a relationship with customers long-term. Customers will always want more and more. Banks may not be able to keep up, but fintechs can.”
We have compiled 3rd-party integrations of the SME neobanks in our study across the most common verticals.
*Note that all information shown on these tables may not be fully exhaustive and is up to date as of 18th December 2020.
The market is ready for the coming age of fintech banking. Qualitative fintech products readily exist and regulators are introducing innovative frameworks to support competition between challengers and incumbents. We are seeing more integrations between fintechs, made evident by the rise of fintech marketplaces like Starling Business Marketplace.
The fintech banking trend is still in its infancy as neobanks’ integrations are mostly restricted to the core functions of payments and accounting, with little diversity of partners. There is a blue ocean of integrations waiting to be explored, from crypto wallets, online factoring to crowdfunding.
Integrations and Partnerships
It is important to distinguish between partnerships and integrations in the context of fintech banking because they both offer very different experiences. A partnership is an association between two or more companies for a common goal. An integration is a partnership which contributes to a more unified banking experience.
A partnership need not involve any API integration on the part of the companies. It can be a simple web link that directs the neobank’s customers to the product of its fintech partner. For example, Tide, Qonto and Mercury offer discounts on their partners’ products. As a user, you can use the neobank’s checkout code/special link to access the discounted prices.
Qonto-Edebex Partnership
Let’s go through the example of Qonto’s partnership with Edebex. When accessing Edebex through Qonto’s web page, you need to first create a separate account on the Edebex’s website before providing personal and business details all over again. Data is not shared with the Qonto account. Just like all partnerships, the user experience does not become more seamless but remains segmented.
Integrations alleviate that segmentation headache, improving the seamlessness of the banking experience by accomplishing at least one of the following three criteria:
- Aggregation of Data
- Synchronization of Log-Ins
- Creation of shared interface
Aspire-Xero Integration
Let’s take a walk through the experience of using the Xero integration at Aspire.
After clicking on the Xero integration button and selecting the starting date for data synchronization, we have to log into an existing Xero account to allow access to Aspire bank information. The data from the Aspire account is then displayed on your Xero dashboard as shown below.
This integration between Aspire and Xero contributes to a more seamless financial management experience as data is aggregated in real time. Without this integration, users would have to manually download the CSV files for transaction data from Aspire and upload them into the Xero account.
Not all integrations are created equal. Aspire’s Xero integration fulfills only one of the three criteria. If you do not have an existing Xero account, you have to create one. This presents an additional layer of friction in the process. It does not solve the problem of having to coordinate many different logins and accounts.
Tide-Iwoca Integration
An example of an integration that creates a more embedded user experience within the neobank’s interface is Tide’s Iwoca loan integration.
Tide members do not need to create an additional Iwoca account. Data is completely aggregated between the two platforms. It is as if Iwoca’s loan offering is just like another feature in the Tide banking interface.
Unfortunately, most neobanks do not have similarly embedded integrations but integrations that only aggregate data like Aspire’s Xero integration.
The More Integrations the Merrier?
We do not think that a neobank should be judged on how many integrations it has. Having integrations that genuinely add value for the targeted customer base is more important than sheer quantity. If there are too many integrations that do not add value, it will only lead to more confusion, or worse, solve a problem that your customer doesn’t have in the first place, the opposite of fintech banking’s goal.
Neobanks should select the integrations based on what the customer needs. Understanding the customer needs can only come about the hard way: through user research and interviews. At Arival, we have conducted extensive customer research that shows a high demand for cheap international payments. An integration with a fintech operating in that domain such as Rapyd or Routefusion would help to meet that demand. As such, that is an important milestone on our product roadmap.
Other than 3rd-party integrations, neobanks can also add value through targeted features in the banking interface. A great example of this is Revolut Business’ payroll payments feature.
Users can upload CSV or BACS payments files to automate mass payroll payments. This is a genuine value add, especially for larger companies amongst Revolut Business’ user base.
Fintech banking does not mean that all features aside from basic business banking should be outsourced to 3rd-party integrations. Integrations should serve as an important source of adding value to their user experience, but not the only one.
Open APIs
Companies that wish to customize or build their own integrations on top of the neobanks’ interface can now do so with Open APIs (Application Programming Interface). Having an Open API means that the neobank’s users can access its code and extend its functionality of their bank account by building new tools and integrations. This is done by providing API documentation in the form of a guide with instructions and use cases. Here are examples from Mercury and Transferwise.
Has Open API documentation:
Does not have Open API documentation:
We believe that every SME neobank should provide access to their API to help their users streamline their workflows. It also imbues a culture of transparency and customer centricity around the product. Conventional banking practices are mostly closed, where systems are owned by the banks. Open API opens the neobank’s platform to the internet, showing a commitment to transparency to users by allowing them to conceptualize new ideas on how to use the platform.
Conclusion
Integrations are a core part of the neobanking user journey and will fuel fintech banking’s continued rise as the biggest trend in neobanking. As the industry matures, we will see more partnerships between neobanks and other fintechs in specific verticals. We have to keep in mind it is not a race for the largest number of integrations, but rather a competition to see who is able to rebundle these fintechs into the best banking experience.
Improving user experience around integrations is all about removing as much friction as possible. This means that neobanks should make it as easy as possible to access the partner’s product or service. A link that only allows you to create a new account doesn’t cut it anymore in the age of fintech banking. Integrations need to be more embedded in the neobank’s interface in order to enable a more seamless user experience.
Every neobank should provide access to its API documentation. Open APIs form a key part of the foundation for improving the banking experience for users who have more specific and technical needs. APIs allow tech savvy bank customers to customize interface interactions and build tools tailored to their workflow. The endless possibilities of making the banking experience a more seamless one should be open to the user.
We hope you learned more about the role 3rd-party integrations play in creating an awesome banking experience. At Arival, we are working tirelessly, conducting user research and testing, to ensure that our platform has the best embedded integrations to help our customers manage their businesses. If you have an idea for a great integration, we are all ears. Contact us at support@arivalbank.com.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official views of any of the featured companies. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. Assumptions made within any analysis are not reflective of the position of any featured company but are instead observations made by the author.
