The look of banking has changed considerably in the UK over the last few years, undergoing a digital revolution. Businesses largely moving online accompanied by developing technology and higher speed broadband services has driven an tech evolution across many industries, not least the banking and financial sectors. Known as challenger banks, these start-ups are not content with disrupting the marketplace for simplified personal bank account services, they have firmly set their sights on business banking too, and it’s causing quite the shake up.
Digital Challenger Bank Revolution
This new wave of challenger banks can’t be found on the high-street – they’re in your pocket! Responding to the growing shift of people using their phones to do their banking, these branchless, mobile-only banks are winning customers from their more established rivals with simple and responsive app based banking services. The term challenger bank describes any bank that’s looking to challenge the ‘big four’, Barclays, Lloyds Banking Group (which includes Halifax, Lloyds Bank and Bank of Scotland), HSBC and the NatWest Group (which includes NatWest and Ulster Bank). Technically established players, such as TSB, Virgin Money and Metro Bank, also fall into the challenger bracket, but the real movers and shakers only offer mobile-based, branchless banking. These banks have become known as challenger or upstart banks. What they offer is simple but different. Easy access, zero-charge app-based banking that offers instant account management and moving money around digitally is fast and hassle-free.
Challenger Bank Business Model
Challenger banks such as Starling, Monzo, Revolut, and most recently partnered with Prestige Business Management is Tide, have all changed how we think about banking. Challenger banks provide streamlined banking services, unpacking financial services, challenging traditional banks and payment and lending services and moving account management entirely online. The challenger bank business model is simple – they offer few overdraft or credit products, preferring their customers to stay in a positive balance, which is arguably more customer-friendly and reflective of a new generation of upfront business transacting. This is refreshing for businesses of all scales. With many businesses operating more and more online, it makes sense for banking services to follow suit.
Shaking Up the Big Four
Challenger banks focus on modern design, personalisation, low fees and sharp customer service to recruit new customers. Real time payment notifications, not only make it easy to keep track of your spending, but you can also immediately identify any fraudulent activity. Challenger banks use the latest software and provide fast transactions from your mobile device, in opposition to the ‘big four’ being Bank, Barclays, NatWest and HSBC, who no longer hold the same power of the marketplace. They were – and still are, for many people – the safe pair of hands trusted to look after business finances from loans to overdrafts, credit to debits. High street banks still enjoy a good reputation, for the most part, for business banking. However challenger banks are increasingly showing that they can be trusted, traditional ways of banking are coming under pressure to update. Perhaps such a shake up could be expected to attract attention, following the traditionally secretive financial deals and shady profiting of past banking chiefs and further disparities coming to light after the financial crash. Unease arising from the long-running PPI mis-selling debacle that saw millions returned to customers to a money-laundering scandal involving the Bank of Credit and Commerce International fuels mistrust of how high street banks operate and manage customer’s money. Consumers are also more aware of ethical banking trends too. No longer, it seems, are customers, personal and business, willing to turn a blind eye to their investments and cash funding projects that sit awkwardly on the ethical and ecological scale. The challenger banks have recognised all this. Traditional banks also suffer from lag in their efforts to enact change, mainly due to their scale and multiple International dealings, changing the way they do things is akin to ‘turning a tanker’ – it takes time for the business to respond. And whilst they were attempting to change course, the challenger banks that had not the ground running arrived on the scene with the ability to flex to meet customer demands.
Challenger Banking for Business
Challenger banks were gaining recognition in the marketplace by 2015. By the end of 2019, 1 in 5 UK consumers were using challenger banks. This makes sense as consumers catch on to saving up to 85% on fees and charges. It was only a matter of time before these early adopters moved their business banking online too. Switching or opening a business account with a challenger bank is no longer considered risky. Many high street banks still have a lengthy, detailed process to open a business account, especially for sole traders and new businesses. Digital banks still need to follow tight security measures, but the process is dramatically streamlined for businesses looking for a straightforward, no-overdraft business account. A challenger bank worth its salt will have the process completed and give you access to your account within just a few hours. Moreover, contacting the bank online should also get you an instantaneous response. The key to their speed is streamlined processes and automated data handling, allowing them to make instant decisions and enact instructions within minutes as opposed to the lengthy processes still holding back traditional banks.For the sole trader or small business owner, being able to stay in control of our money, 24/7 has many benefits. Plus fingerprint login as well as patterns and pins means using a banking app is simple and secure.
Choosing a Challenger Bank
As a business owner you will need to take into consideration exactly what you need from a bank and how well they meet this function. Most challenger banks offer limited cash handling facilities. However there are a number of other fintech platforms that offer this, which may prove more reliable than a high street branch in the longer term. Challenger banks stand out because of the range of tools they offer business customers. From being able to switch easily between accounts on the app to integrating with accounting platforms, there are many tools to take advantage of. Overdrafts are becoming outdated with the emphasis being on ‘positive’ credit banking for small business. If you feel you need an overdraft, you may be able to apply online or talk to a customer support team. There are fees attached to various services from challenger banks, however the technological streamlining means these can be greatly reduced compared to traditional banking services and big savings can be made if you select an online bank according to your businesses specific needs and types of transaction. One area where this can make a difference is whether or not you are trading overseas. Not all challenger banks are yet registered with the Financial Services Commission (FSC) or Financial Conduct Authority (FCA). Most challenger banks offer 24/7 in app support, make sure that any technical support will be available to you when you most need it. Challenger banks are best for simplified banking, but are increasing their services all the time. If you can save fees with banking online then get started and you may find it favourable to move over your other services as the sector gains traction. Whatever works for you. Choosing the right business banking provider is about understanding what your business needs now and what you may need in the future as you grow. You need to factor in all of these needs and wants whether you intend opening a business account with an online bank or plan on a high street bank.
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