For years, high street banks such as Barclays, HSBC, Lloyds and NatWest) dominated the UK banking market, leaving small businesses with limited choice. When Metro – the first challenger bank – launched in 2010, it was the first new UK bank in 100 years.
Then, the Competition & Markets Authority (CMA) and the Office of Fair Trading intervened and blew open the doors to innovation and competition. Out came the digital banks: Starling launched in 2014, followed by Monzo, Revolut and Tide in 2015.
The big banks responded by enhancing their online and mobile banking capabilities. Some traditional banks have developed their own app-only products (NatWest’s Mettle and HSBC’s Kinetic), to improve the digital experience for their customers.
Small business owners looking for their first business bank account now have so much choice that the decision can be tricky. Start by asking yourself these three questions.
1. What does good customer service mean to you?
Different banks offer different customer service options, from apps and chatbots to call centres and in-branch appointments.
Customer service, including easy access to an adviser, was an important factor for almost a third (31%) of small business owners, according to recent NerdWallet research into ‘faceless banking’. But waiting on hold to speak to a human isn’t everyone’s preference.
Challenger banks: Managing your account over the phone or in person is not an option with some banks such as Starling and Monzo, yet they still ranked highest for quality of service in the latest banking satisfaction survey by the CMA.
Mobile apps make it possible to interact with your bank 24/7. However, chatbots can’t always handle more complex or specific queries. “You quickly get impatient and think ‘they aren’t helping, there are too many barriers here,’” said Andrew Martin, CEO of SMEB, a finance company offering payment services to businesses in rural locations. He told NerdWallet he has found it difficult to navigate through chatbots to get to a human decision-maker and still prefers to speak to someone in person.
Traditional banks: Small businesses with more sophisticated financial needs, such as international payments, might find it easier to deal with the customer support provided by a traditional bank. “If you’ve got suppliers from different countries, you’ve got a more complex proposition that tends to take you back to the retail banks, the traditional players,” explained Martin.
🤓 Nerdy Tip
Read online reviews of business bank accounts to find out how other users have experienced their customer service. If you attend business networking events, ask fellow business owners about their experiences.
2. Are you prepared to pay a monthly account fee?
A total of 43% of UK business leaders look for a business bank account with no monthly fee, and more than a third prioritise free UK transactions, according to NerdWallet’s study.
When shopping around for zero-fee business bank accounts, it’s worth reading the small print: An account that’s marketed as ‘free’ may start charging you after an introductory period.
Challenger banks: Leveraging digital-first models helps challenger banks keep their overheads down, making it easier to attract business customers with more cost-effective banking solutions. If having no monthly fee is top of your wishlist, it makes sense to include challenger banks in your search.
Traditional banks: Many high street banks attract new customers by offering a fee-free account when you first sign up. This could be a good option for you if you’d prefer to begin your business banking journey with a more established brand.
🤓 Nerdy Tip
Compare transaction fees for moving money within the UK. Exporting goods outside the UK? Check which banks offer free international transactions too.
3. How quickly do you need to open a business bank account?
Few business owners have hours to spare filling in forms. Set-up time is therefore an important consideration.
Challenger banks: Many challenger banks enable users to open an account on the same day, appealing to freelancers and side hustlers who can set up business banking online and from the comfort of their sofas. “Simple businesses with a modest need for banking can get off the ground with a challenger bank mostly within a few minutes of downloading a banking app,” said Lawrie Chandler, a financial adviser who works with individuals and businesses.
Traditional banks: Opening a new account may take longer with a traditional high street bank – even their digital versions. For example, it can take up to 72 hours after applying for NatWest’s Mettle account to be up and running. Lloyds TSB advises business customers to allow six days and Barclays can take up to seven days. But if your business has more complex financial needs, it could be worth the wait.
🤓 Nerdy Tip
If you need to separate your personal and business finances quickly, a challenger bank may give you the convenience you need right now. But, keep an eye out for services that could benefit your business in the future – your needs might change as you grow.
The way forward for business banking
For simple start ups and the newly self-employed, challenger bank accounts can tick all the right boxes – especially if you get free accounting software and plan to do your own accounting. But, as your business becomes more established, you may want services and support that aren’t available through an app.
If you like elements of both traditional and newer app-based accounts, opening a digital bank alongside a traditional one “could give you the best of both worlds”, said Mike Conroy, director of commercial finance at trade association UK Finance.
Remember that it doesn’t always pay to be loyal to one provider for years, and whichever bank you choose for your first business account needn’t be your last. Switching is straightforward and if your bank is signed up to the Current Account Switch Service, you can move your money for free. Payments will be transferred across, so there’s less admin for you.
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