Onboarding In SME Banking – A New Flavor Of Catch 22

April 2024

Today, I will enter new territory – at least it is new to me. I have worked for many years in the space of banking technology, architecture, and software for retail, small and medium enterprise (SME), and corporate banking. Today, I will share the experiences of a person I know well - let’s call him Thomas. He is in the process of founding an LLC (I will use the term LLC even though I'm talking about a German GmbH - similar but not identical legal concepts). Thomas tried to get a new SME account in Germany quickly, and here are his experiences.

In a first step, Thomas thought using fintechs would be the right way to go. A quick scan of the market, however, showed that many fintechs either did not want to or could not serve an LLC: many fintechs serve sole proprietors only – maybe because the onboarding process for an LLC is document-heavy and thus potentially costly. That didn't leave Thomas with many options, but urgency remained: An LLC’s registration process can only be completed after its capital stock has been deposited. This is why Thomas needed an LLC account, and he continued looking at further options.

Thomas presumed an established, internationally operating German fintech like N26 would support his LLC, but he wasn’t successful. Then, he looked for European fintechs that could onboard an LLC. To be fair, he found some in the European environment, but he wondered whether they would be sufficiently familiar with the requirements of German LLCs. Working with an attorney and a tax advisor, he was already struggling with the formalities of setting up his LLC. He needed less complexity, not more. This is when Thomas included incumbent banks in his list – either local banks or banks with local branches:

• German tier-1 bank: Thomas has been a retail customer of that bank for many years. Nevertheless, he wasn’t able to identify a local SME contact. Thus, Thomas talked to a friendly, but yet unknown employee in the contact center. He learned about the monthly cost of the bank’s SME offering and its onboarding process for LLCs. Thomas perceived the pricing as above average and – more importantly – a two-to-three-weeks onboarding process as too time consuming. This was not what he was looking for.
  
  
• A cooperative bank: Thomas called the SME team of the local cooperative bank (a sizable “Volksbank”). A cheerful employee explained that Thomas had used the correct number (surprise - this was the contact number on the bank’s SME center website after all). However, the entire team would still be on lunch break, and they would call him back. Given that it was about 1.30 PM Thomas expected a call later that day – or maybe the day after. This was about three weeks ago, and the “team” hasn’t had the time yet to call back. Another option – gone.
  
  
• German tier-2 bank: Thomas knew that a friend of his had had a pretty good customer experience with this bank’s retail banking services. So, Thomas got in touch with the bank. A very friendly, knowledgeable employee in the contact center explained SME services and cost, and the time for the onboarding process was within an acceptable range. Thomas thought he had reached the end of his quest for an SME account. But then he learned that neither the local branch nor the bank’s website could onboard SMEs. He would need to visit an SME branch -- and the nearest SME branch was more than 50 kilometers away.
  
  
• A savings bank. Thomas used a contact form to get in touch with a local savings bank. A day later - on Friday afternoon - a bank advisor dropped an email suggesting a call. When Thomas replied, he received an out-of-office message and was asked to contact a second advisor: The first advisor had probably sent this email shortly before leaving the office. The phone call with the second advisor took place just under a week after the first contact. The second advisor was friendly, well-informed and sent additional information by email. He even took it in stride that another bank had won the onboarding race in the meantime. Not a great start, but a pretty good end.
  
  
• Fyrst. This "offer of Deutsche Bank" was founded in 2019 to serve Thomas’ customer segment. When Thomas heard that it would use an ID code of Postbank (a subsidiary of Deutsche Bank), he initially shied away from Fyrst. After all, the head of German supervisor BaFin mentioned “profound disruptions in [Postbank’s] customer service” after some serious issues in 2023. After running out of options, Thomas decided to try Fyrst and, to start with, it worked like a charm. One day after uploading the LLC documentation he received a welcome email, and two business days later Thomas had his LLC account. Admittedly, chat support for questions wasn’t available during onboarding, but email support worked nicely.

I am in no position to claim that Thomas has found all possible banking options for SMEs in Germany or that his experiences are typical for these banks. It is also possible that some call center employees did not accurately reflect the products, services and costs of their banks. Thomas may also not have fully digested all the information he received. But the bottom line of this story is not positive at all.

I would describe the situation for quite a few financial services firms as "no bank account for LLCs, no LLC without a bank account". Does that sound a bit like the novel Catch 22? The good news is that not all financial services companies create a Catch 22 situation: some are simply too slow, too expensive, too inconvenient. But that's not really good news. So perhaps it's no great surprise that Catch 22 came to mind pretty quickly when I began to understand the situation.

And that brings us back to banking technology, architecture and software: many of the fintechs and banks mentioned in this post desperately need digital solutions that make it easier for SMEs – and as we have seen particularly for LLCs - to onboard and work with their accounts. It certainly doesn't help that banks have SMEs pay for basic account services that consumers get for free. What SMEs need is fast, seamless onboarding plus bank services and great customer experiences tailored to SME requirements.