Trust in the traditional banking model is in decline. Low access to finance is frequently cited as a key growth barrier for small firms, while high street lenders have struggled to reconcile rapid branch closures with online services.
Stepping into the so-called “business banking gap” are a host of challengers, targeting the specific needs of a small business market overlooked by the high street. Beginning with Metro Bank’s arrival in 2010, several others have muscled in to tempt founders with a more bespoke service.
We’ve now seen the government look at challenger banks to drive greater competition in Britain’s business banking marketplace. As part of its state aid settlement, Royal Bank of Scotland’s £835m Incentivised Switching Scheme will see 15 separate grants handed to challenger banks to promote their offering to small business owners.
What’s clear in the uptake of challenger banking so far, small business owners are looking to do things differently – even down to having a named contact they can reach out to. To find out if UK banking’s newest entrants have revolutionised financial services for entrepreneurs, we’ve handpicked the best challenger banks available today.
When Metro Bank opened its first branch in 2010, it was Britain’s first new high street bank in over 150 years. The bank remains the only market challenger to take on the physical presence of the big six lenders.
It offers on-the-day opening of current accounts, and prints cards and cheque books there and then. Branches are also open longer hours than traditional banks, and seven days a week.
Metro Bank in numbers
Positioning itself from the start as the “entrepreneur’s bank”, Metro Bank committed a further £1bn for small business lending in January 2017.
Announcing the bank’s expansion in January, business banking director Ian Walters said: “Our new Local Business Managers will provide a welcoming presence on the high street, and will be there to assist businesses at every stage of their development. Metro Bank is committed to investing in supporting local businesses and giving them the flexibility and help they need to develop.”
Crucially, Tide is a current account for business owners, not a “bank”. The new arrival launched in January 2017 to “revolutionise” how small business owners manage their finances. Tide claims signing up takes just “a matter of minutes”, and guarantees to accept all UK sole traders and limited companies.
In the first of a potential line of collaborations, Tide partnered with Xero to offer account holders integration with their accounting software. The “mobile-first” banking service is likely to focus on putting third-party technology into its app, and is most suitable for entrepreneurs who live through their smart phone.
- Three-minute sign up
- No foreign exchange or commission fees
- App-based with responsive customer support
CEO George Bevis told Business Advice on launch of the app that Tide will be a long-term partner for entrepreneurs as their business expands, while its online community will act as a unique advice point for founders.
“We take the view that bankers have historically been terrible sources of advice and guidance – far worse than accountants and other real experts. We want to create an open space where our members can share their expertise and discuss their needs,” he explained.
Founded in 2009 as a “straightforward” bank, Aldermore made its name targeting the broader SME market with invoice finance services. The bank exists online and serves its business customers through a network of regional offices around the UK.
Aldermore now offers a wider range of packages, including asset and invoice finances. It’s new Business Finance division added commercial mortgages to the existing proposition.
- Over 230,000 business and personal customers
- Customer deposits worth £7.3bn (as of 30 June 2017)
- £1.9bn in lending to small businesses (as of 30 June 2017)
Upon launch of the latest products, Carl D’Ammassa, group managing director, said: “We have seen strong levels of growth at Aldermore as we support more great British businesses than ever before. These changes will unlock further growth potential for the bank but most importantly enable us to provide more products and services to our business customers.”
OakNorth began offering loans between £500,000 and £20m to UK business owners in the autumn of 2015, with finance packages focusing on property development and investment.
The bank has sought to differentiate itself from other challengers by investing in modern systems and technology, combining this with traditional banking and lending skills.
While running off the tagline “lending for entrepreneurs, by entrepreneurs”, OakNorth’s mid-market focus and property-driven approach could alienate owners of younger firms. But, a range of savings accounts are available.
- £710m in lending to small business owners (as of August 2017)
- £430m in lending in 2017 alone, with £700m earmarked (as of August 2017)
- Delivered £21m to property developer Strawberry Star
In an interview with Business Advice, CEO and co-founder Rishi Khosla called for entrepreneurs to reject major banks which, he claimed, had long prioritised larger companies and took a “computer says no” approach to small business lending.
“We’re looking at a quicker turnaround and increasing the customer experience,” he said.
CivilisedBank secured initial stage funding in 2015 and set out as a digital-only bank exclusively for small business owners.
Again, targeting where big banks could be failing entrepreneurs, the bank made its local outlook clear from the start – stay off the high street, but use a nationwide network of “local bankers” to develop one-to-one relationships with customers.
After receiving its banking licence in May 2017, CivilisedBank chairman Chris Jolly championed the bank as “reinventing traditional banking for businesses by bringing back one-to-one relationship banking”.
“What makes CivilisedBank different is that we are offering a genuinely new service that isn’t currently offered by either traditional or online-only banks.”
Currently, the full local banking service is only available to business current account holders with over £1m annual turnover.
And the rest…including Revolut, Handelsbanken, Coconut, Atom, Shawbrook
The London-based money app launched in July 2015 to allow “fair and frictionless” payments around the world. Revolut offers users a pre-paid MasterCard function, currency exchange and peer-to-peer payments.
Swedish financial services firm Handelsbanken set up its UK base in 1982 and seeks to provide bespoke banking to business and personal customers looking for a long-term banking relationship.
Billed as “the bank account for freelancers and self-employed people”, Coconut offers a service that works out tax returns, tracks expenses and manages invoices.
Durham-based banking app Atom recently received a £30m funding boost from the British Business Bank to lend out more money to small businesses.
A fully-fledged challenger bank, Shawbrook targets small business owners who have been unsuccessful in obtaining finance from major banks.
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