Ask any entrepreneur, and he or she will tell you that starting a new business isn’t easy. Now imagine moving to a new country to not only establish a life there but also establish a company, too.
Muhammad Asim endured this challenge himself when moving to the U.K., a market he recently told PYMNTS is especially difficult for small- and medium-sized business (SMB) owners coming from out of the country — particularly when it comes to accessing small business financial services. Now, he wants to help other new-to-country entrepreneurs in the U.K. as they struggle to gain access to basic banking.
“I, myself, came to this country as an entrepreneur,” he explained. “Starting a life can be very tough. Starting a business is even tougher than that.”
Asim is director and industry expert at Arro Money, a new company that announced its entrance to the U.K. financial services market this week. Arro Money isn’t a bank but is operated by Marq Millions, a firm authorized by the U.K. Financial Conduct Authority (FCA) to provide electronic money services, according to Arro’s website. Arro is launching with a focus on helping new-to-country individuals and entrepreneurs set up bank accounts and gain access to key financial services.
In today’s climate, Asim said, even getting a bank account is a major hurdle.
“If you manage to get a bank account, it will take you approximately six weeks just to get an appointment with a bank,” he said. “To compare, getting an appointment for a personal bank account takes about one week.”
But the hurdles to entering the U.K. market as a small business begin before entrepreneurs even step foot in the country. They must enter the country with a Tier 1 visa, and the requirements of obtaining such a visa are lengthy — including access to £200,000 worth of investment funds.
Once in the country, these entrepreneurs will struggle to work with banks because they lack the proper paperwork and documentation required to open an account. This includes a driver’s license, permanent address or proof of residency at that address, all of which take months to establish.
According to Asim, international students face a similar struggle when coming to the U.K. Yet, unlike international students, small business owners can’t simply rely on cash to get things going. Compounding these challenges is a little thing called Brexit, which has created a massive air of uncertainty for international entrepreneurs thinking of entering the U.K. market.
“Now, entrepreneurs, especially [those] from Europe, can easily come here and start a new life,” he said. “But, after Brexit, things will change. All of the conditions applicable to the rest of the world will be applicable to European entrepreneurs, and banks will start treating them like the rest of the world.”
There is a lot that remains up-in-the-air when it comes to Brexit, too, especially for entrepreneurs and financial services players. For instance, Asim said, financial institutions (FIs) that are based in the EU but well-established in the U.K. now have an uncertain future ahead.
“Some financial institutions are not actually established in the U.K., they passported themselves in,” Asim said. “What are they going to do? It’s a big uncertainty.”
One of the largest challenges for the FIs themselves before they begin servicing new entrepreneurs is the need for loads of data and business documentation to conduct the proper know your customer (KYC) checks and other regulatory requirements. Arro will target this point of friction through streamlined data feeds between it and the SMBs, automating KYC processes without requiring credit checks. Businesses gain access to virtual cards and mobile payment capabilities (via contactless Mastercard), and receive their account numbers in mere minutes, according to Asim.
“We’re not asking for any additional [business] documents,” he said. “We’re using technology to find whatever data the regulation says we need to open a bank account.”
Arro, which also announced the opening of a Series A funding round, is part of a growing list of challenger banks and alternative FinTechs in the U.K. addressing some of the largest pain points for small businesses when it comes to banking. For any SMB, whether homegrown or coming from outside the U.K., that includes accessing financial services built for small businesses — and not being forced to use products designed for individual consumers.
U.K. small businesses aren’t necessarily happy with the services they have at their disposal from traditional banks today. Researchers at Strands released new data last month that found SMBs consider their banks to be utilities, not business partners. Today, 43 percent of small businesses said they are considering switching to a challenger bank because they are dissatisfied with their experience at traditional FIs.
Strands also found these traditional banks expect it will take up to five years to complete any digital transformation necessary to meet SMBs’ rising demands for high-tech services and products. Rather than wait, many small businesses could simply turn to alternative players like Arro Money.
But, according to Asim, that may not necessarily be a bad thing for the traditional banks, which are more focused on keeping the high-value customers they already have than on investing in obtaining more SMB customers.
“I’m very positive about the small business banking market,” he said. “There is a lot of competition coming in. Banks are already earning good money with a very [small] number of clients. They don’t want to service the small- and medium-sized businesses. For us, we can keep our operating costs low. You don’t need high operating costs like High Street banks. We can act smart and keep our costs low.”