Britain’s top five banks might rule the waves of business banking, but a school of nimble new upstarts is disrupting the landscape with cheaper, colourful, more intuitive offerings that meet the needs of today’s entrepreneurs. Should you try out Tide or give Coconut a whirl?

For years, businesswoman Katy Carlisle stuck faithfully to her high street bank. The founder of online design agency The Wheel Exists, Katy worked hard to build up her client base but found over time that she wasn’t getting the service she wanted or needed from her bank.

“I used to have to keep logging on to see if I’d been paid by clients. That was frustrating! These huge organisations can’t move very quickly and take advantage of feedback to ensure they are offering customers what they need. The business banking offered by the high street seems massively outdated.”

In 2018, Katy had enough. She switched to Coconut, the new current account for freelancers, the self-employed and small business owners, and she hasn’t looked back. Coconut’s selling point for business customers is that it combines banking and accounting into one simple product, and takes mere minutes to open a bank account.

Katy says, “Moving my banking to a modern challenger brand was a no-brainer, really. Coconut [tells me automatically as soon as my invoices are paid], and it saves so much time.” She also feels like she has “a relationship” with Coconut, and can respond to the bank on social media if she thinks of features that can help her.

So why are these newcomers springing up, and why are entrepreneurs like Katy jumping ship? Business banking charges can mount up, fast. Most high street banks levy a quarterly charge simply for having an account, not to mention additional costs for standing orders, direct debits, cashing cheques and other everyday banking tasks. As our table on page 37 shows, a business could be paying nearly £30 a month just for cashing a few cheques, paying in some cash and receiving or sending direct debits.

Although the high street still holds the lion’s share of Britain’s estimated 5.7 million business current accounts, its dominance is finally being called into question. Bold brands like Monzo, Starling, Tide, Metro Bank and Coconut are launching products into the business banking space that are much cheaper than existing business current accounts.

What do the challengers offer?

They compete on price and service. Most allow you to open an account in minutes, and few charge monthly fees. Entrepreneurs are drawn to free electronic payments, domestic transfers and ATM withdrawals, along with functions like expenses management and tax planning. These apps also use Open Banking functions to link your bank account to accounting software, and their apps allow you to see your business at a glance.

Where they fall down tends to be on business financing – the big banks have deeper pockets. However, the challengers are beginning to partner with other companies to provide loans and invoice financing, and some are developing this capacity in-house. Challenger bank OakNorth has made a name for itself by specialising in lending between £500,000 to £45 million to small and medium enterprises (SMEs).

Starling is developing a platform for instant invoice financing, and an artificial intelligence tool for cash-flow forecasting as part of plans to lend SMEs up to £913 million. It is these smart functions that drew entrepreneur Maxim Gelmann to Starling Bank when he set up his business, Stroodles, which sells straws made out of pasta to reduce plastic waste.

He says, “I was sick of my traditional bank accounts with HSBC,” he says. “Starling offered integration with accounting software Xero, and the app works really well. Also, I don’t pay. Although Starling doesn’t offer international transactions in as many countries as HSBC, I think that’s a fair compromise, because I can use Transferwise. I think I shall switch my other business account to Starling too. There’s no reason not to.”

With rival Tide, entrepreneurs can sign up for a free business account in minutes, and benefit from time-saving tools like accounting, payroll, invoicing, expense management, tax and more (scroll to the end for an exclusive Workspace offer).

Maxim GelmannFounder of Stroodles 

Do your homework

However, take a look beyond the shiny interface and you might find some big differences. Rachel Springall at financial product-comparison group Moneyfacts says that it is important to be very sure what you are paying for, as well as looking at the functionality. For example, Starling charges £3 for depositing cash at the Post Office.

“Clearly, those accounts that charge more for cash deposits will be a poorer choice for businesses that deal with cash frequently, so users best be aware of the full tariff on their account and switch if it’s costing them each month,” she says.

A slow pace of change

New business banking may be cheaper and offer better technology, but many customers are still reluctant to move or switch completely. Businesswoman Katy has kept her old high street bank account open, even though she says it now seems old-fashioned. She says, “It takes a while for businesses to change the details on invoices, which is why the old account is still open.”

This slow pace of change means that high street dominance of the business banking market continues. Even leading challenger Metro Bank only has 2% of the market. The Current Account Switching Service (CASS) says that just 33,000 small businesses switched in the financial year to April 2019, compared with more than 900,000 individuals. Why so slow?

“Our research shows that awareness amongst SMEs of the switching service offering is high, but often these businesses are not sure that there is a better bank account available for them,” a spokesperson says. “It’s important that companies do assess what they need from a bank account, because there are variations between providers that could make a notable difference to the way they are able to run their business’s finances.”

SMEs sitting on the fence

Lorence Nye, Senior Policy Adviser at the Federation of Small Businesses, says that business owners are wary of switching to challengers because they are worried about mistakes, even though the challenger banks offer functionality that they would find helpful.

“People think of entrepreneurs as risk takers, but they are still quite traditional when it comes to banking,” he says. “While challengers are often offering a better or cheaper option, business owners can be quite reluctant to switch. Success stories from other businesses will help to encourage them, but it is a slow process.”

*Charges correct as at time of going to print – September 2019

The price is not right

There is some evidence that the high street banks are taking on the challengers when it comes to free business banking. Royal Bank of Scotland recently announced the launch of Mettle, a standalone digital entity offering a free business current account. Some banks now have apps that allow you to pay in cheques using your camera’s phone, as well as checking your balance and making electronic payments.

Jacqui Morcombe is Area Vice President for International Sales Enablement at cloud banking specialist nCino, based at Metal Box Factory in Southwark. Across nCino’s own 250+ global client base, traditional financial institutions can provide quality customer experiences if they leverage the right technologies and processes.

Jacqui says, “With an installed customer base, brand recognition and a wealth of knowledge and resources, they too can be well positioned to deliver client-focused solutions. Innovation is a culture and an attitude and certainly not limited simply to challenger banks.”

However, despite the launch of Mettle and more, there has been no move from high street banks to compete on price or offer free business banking. At best, some accounts offer a free banking period to start with, but soon the charges stack up. These vary depending on turnover.

Alex Cardona, Co-founder of Codat, and his teamInk Rooms, Clerkenwell

Can big banks compete?

Start-ups get 12 months’ free business banking with Santander and 18 months free with NatWest, Lloyds and Bank of Scotland. After the free period, however, most business accounts slap on monthly charges with rates varying wildly – check out our comparison chart on page 37 of homeWORK magazine online or available to pick up in all Workspace centres. On top of these charges, though, customers can end up paying for a huge variety of things.

A spokesperson for Santander says that its customers pay for “unique access to relationship managers” and other services such as “masterclasses”, and that its prices are similar to other banks. However, Starling believes that charging customers is a question of mindset, and that big banks don’t get it. Starling user Maxim says, “I don’t need a person, I just need everything to be quick and accessible. I guess traditional banks aren’t very good at thinking about what start-ups need and don’t need.”

Big banks’ lack of resourcing in this area opens up an opportunity for nimbler fintech businesses, says Alex Cardona, Co-founder of Codat, based at Ink Rooms in Clerkenwell. Codat provides APIs for small business banks and modern payment service providers, like Tide and iZettle.

Alex says, “Small businesses are complicated and it is very hard to argue in a big bank that there should be more resources put into products that will be helpful for this small pool of customers. That leaves a great opportunity for challengers, who are coming up with some great banking products for small business.”

Whether a challenger bank account is right for your business depends on its size, and on the functionality you need. In many cases, the challenger banks still only deal with smaller businesses, or those with simple business structures, but for many starting out, the disruptors can save money and hassle – a winning combination for any business owner.

Looking to switch to a start-up bank? Tide Business Banking is offering a special deal for Workspace customers. Get a year of free bank transfers here. Open an account and use the code WORKSPACE to claim your offer.

Want to explore these topics further? Have a flick through homeWORK magazine online, or pick up your own copy in the lobby area of any of our Workspace buildings where we cover everything from the best business funds to grow your business to how to embed sustainability into your working ethos.

Come and listen to Tide’s Chief Operating and Product Officer, Laurence Krieger, share his views alongside a panel of experts at our next informed Funding evening seminar at The Leather Market in London Bridge on 7th November. Find out more and register here.

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