The Battle of the Banks

Is it time to ‘switch’ your business bank?

I’ve used the same bank for my businesses for over 10 years, as loyal as a labrador - but have I missed a trick? Have you switched business banks recently? Tell me what your motivation was.

Are there better banks out there than mine? Undoubtedly. But what makes a bank better or even the best? 

And is it really worth the time and effort to switch your business bank? 

I hear from loads of small businesses who find it hard to deal with their bank. They want their business banking to be as simple and accessible as their retail banking experience, but for many their banks' core business offering is pretty inflexible.

One serious question to consider.

Should you change banks when you go from ‘start-up’ to ‘scale-up’, and can a really really good bank help you ‘stay-up’?

I would say YES, almost definitely. 

There are very different banking propositions for different stages, sizes and types of business. You also need to consider what banking services you might need over and above a current account, and if you want a relationship with an actual person at your bank?

Traditionally - as we all know - switching banks hasn’t been that easy, the good news is that it’s getting even easier thanks to digital innovation, Open Banking and the Current Account Switching Service (CASS).

A nod to Nerd Wallet for their ‘switchers section’ which compares some (definitely not all) 23 banking products for people considering a move.

A Small Business Banking Revolution

It’s hard to believe that some of these so-called ‘Challenger Banks’ have been around for nearly 10 years! It’s difficult to call them ‘challengers’ with a straight face these days.

What really differentiates them from the big four high street banks of Barclays, Lloyds, HSBC and Natwest, is their digital-first business banking proposition.

And here they are (in completely unbiased alphabetical order):

ANNA

Atom

Card One Money

Monese

Monzo

OakNorth Bank 

Revolut

Redwood Bank

Starling

Tide

Not all of them started life as Business Banks. Some have only recently set their sights on business banking customers, bringing their customer-centric approach with them. 

Whilst most banks have long recognised the value of delivering a great UX for their retail customers, traditional business banking lagged behind - untouched by the disruption of these digital banks.

As long as the fees were competitive, it didn’t seem to matter that the digital experience was poor. Business owners like me stayed put, enduring the lack of innovation and mass closing of branches.

Saying that I think

it’s been at least 4 or 5 years since I’ve stepped inside a bank….and probably even longer since hearing from a so-called ‘relationship manager’.

I’m clearly not alone. A survey from smallbusiness.co.uk and the Current Account Switching Service, last year, suggested that over half of businesses (53%) have never switched their business bank account. And 20% of SMEs surveyed are still using a personal current account as opposed to a business account. That seems incredible to me when you think about the different business banking options now available.

Despite this kind of survey data, there’s definitely a shift going on, and small businesses’ attitudes to these challenger banks are changing too. The latest SME business banking customer satisfaction ranking from the Competition and Markets Authority (CMA) reported Starling came out top in terms of customer satisfaction in three out of four categories in which it was ranked. 

That’s really impressive and just shows that many SMEs are now putting more emphasis on the flexibility and innovation that the ‘challengers’ offer. 

The increased competition is definitely revolutionising the small business, and startup, banking experience. I’m really pleased to see more banks are taking a fresh approach to what they offer their business customers. And we’re now seeing some of the more traditional banks adapting by shifting their focus, and restructuring their internal teams, to bring a better UX to an increasingly mobile business landscape. 

The revolution will not be televised (well, maybe on mobile only).

Does your businesses need a bank on the High Street?

There’s no doubt that traditional business banking is long overdue for this kind of shake-up. High Street banks are being compelled to look beyond traditional banking services to create new business models for business customers. Business customers are demanding dynamic financial marketplaces for everything a fast-growing SME might need.

However, it’s pretty clear, despite all this talk of digital first banking and the ‘challenger banks’, traditional High Street banks are still responsible for the majority of lending to small businesses, and have a number of advantages for SMEs.

Trust is still a big one, despite the financial crisis of 2008 having an impact, most businesses still trust their traditional business banking partner. High street banks also still benefit from their extensive networks, a solid technical infrastructure, and long standing expertise.

These advantages remain powerful for now, but they’re being eroded by challenger banks, and other fintechs, looking to muscle in on the business banking market.

Unless traditional banks can adapt even more quickly they risk being left behind.

We’ve already seen some of the traditional banks adapting already. Natwest set up  Mettle in 2018 and it’s already processed £2bn worth of customer transactions through the platform since January 2021. 

They operate with a seemingly arms-length relationship to NatWest, which is a smart move - well received by the start-up community. They intentionally focus on start-ups and small businesses, but obviously have the natural trust and brand identity due to their association with NatWest.

We’ve also seen HSBC partner with the open banking platform Bud to offer its customers access to a marketplace of information and useful financial services apps.

This new approach is a complete pivot for many traditional banks, often dealing with outdated legacy systems that make these kinds of changes a real challenge. Time will tell if they’re able to evolve, but seeing these improvements is really encouraging for all SMEs and Startups looking for a better relationship with their business bank.

The Future of Business Banking is ‘Open’

Much of this innovation has been driven by the ‘Open Banking’ revolution. Open Banking in the UK was introduced in 2018 as a way to create more competition in the banking market. It enables retail customers and SMEs to share their current account information securely with third party providers, who then use that data to tailor their apps and services to peoples’ specific financial circumstances.

Open Banking has already driven innovation in the way a business’ data can be aggregated. For example, Barclays’ SmartBusiness Dashboard offers a fully customisable business dashboard, with your business data all in one place, and compatibility with accounting software and PayPal.

It also allowed digital banks to offer intuitive integration with 3rd party providers. Like Monzo and Starling’s partnership with the cloud accounting firm, Xero.

At the beginning of this year, data from the industry body, Open Banking, suggested that 600,000 SMEs are using open banking enabled products to manage their finances, and that number is rising rapidly.

2021 also saw almost 27 million open banking payments being made, that’s a 500% increase from the previous year. Open banking payments allow customers to pay SMEs for products and services directly from their accounts rather than using a credit or debit card. This means greater competition and choice in ways to pay and be paid, benefitting small businesses and startups in the long term.

Other open banking benefits for SMEs include:

• Being able to aggregate financial positions across consolidated accounts showing all your financial data in one place 
• Integration of cash-flow forecasting tools and data solves one of the main worries for SMEs around cash-flow and liquidity management
• Access to real-time analytics (how a company is using its accounts, credit, and payments) which improves credit scoring models
• Instant Settlement - means that e-commerce payments can be received immediately. Leading to the quicker dispatch of goods and services, and less susceptibility to fraud

Open banking has proven to be a real banking industry disrupter. It’s also forced a reckoning for what traditional banks offer their customers in the future. 

Banks need to decide whether they want to follow the ‘Banking as a Platform’ model where they partner with fintechs to offer their business customers some of these key new benefits from open banking. 

Or do they follow the ‘Banking as a Service (BaaS) model where banks provide the back office power to the fintechs that actually have the relationship with the customer?

It’s a pivotal moment, but one that will only benefit business banking customers in the long-run.

Recognition for Business Banking

I realise how important a good business banking partner is to all small businesses. Throughout the pandemic we saw banks playing a vital role in helping keep many SMEs afloat. I know that if you’re an SME, your relationship, and trust, in your bank is vital, so that’s why we wanted to recognise business banks at this year’s Growth Finance Awards.

I’m delighted to say that we’ve got even more opportunity to reward the best in business banking at this year’s awards. We’ve got categories for ‘Best Business Banking Innovation’, ‘Best Business Bank for SMEs’ and ‘Best Business Bank for StartUps’. 

No matter what your contribution to the business banking sector there’s a chance to get the recognition you deserve this year. And if you’re reading this as an SME business customer and want to help your bank get recognised, then make sure they know to enter.

It’s an exciting time in the business banking world. There’s so much great work going on to find new, and innovative, ways to support small businesses. And regardless of where all this disruption takes us, it’ll be the SMEs and StartUps, demanding a better business banking service, that stand to gain the most.