The UK banking system proved to be exceptionally profitable and useful to consumers throughout the twentieth century. But today, there’s a sense that it isn’t keeping pace with the times and is falling behind the technological frontier. There’s a big gap between what’s technically possible and what the financial sector is actually doing - and this problem gets more apparent day after day. 
For business owners looking for a great business bank account, this is a problem. The technology and systems exist to create fabulous products, but the traditional high street banks appear resolutely against implementing them. 
 
Part of the reason for this has to do with consumer apathy. The public might be abandoning the high street in general, but they’re sticking apathetically with their current accounts. Data from the Competition and Markets Authority suggest that only around 3% of people in the UK bother changing their current accounts in any given year, even though there are numerous better options available to them. 
 
One of the problems is that current account users just aren’t aware that there are significant differences between products. Some current accounts offer additional perks and benefits, even in a low-interest-rate environment. It is, therefore, often worth making the switch, even if the benefits aren’t immediately obvious.. 

How do the challenger banks compare to the high street? 

Whenever there’s stagnation in a particular market, there’s also opportunity. New players can enter the space at any time, provide customers with better products, and shake up the entire market. That’s precisely what so-called “challenger banks” are trying to do in today’s banking sector. They’re creating current account products which offer businesses far more than what the traditional players, like Lloyds, HSBC, Santander and Barclays, offer them. 
 
The rise of challenger banks has to do with regulatory relaxation in the UK. It’s now much easier to set up a bank than it was before - a godsend for business customers all over. 
 
So, what do so-called challenger banks offer, and how do they differ from their traditional rivals? 
Starling Bank 
Starling Bank got its start back in 2016 and launched in early 2017 following a massive cash injection from an independent fund committed to increasing competition in the banking sector. At the last count, Starling Bank had more than 66,000 business customers. 
 
Starling Bank is an app-only account. The bank does not run any branches or offer any in-person services as high street banks do. It offers business customers the option of managing their accounts and finances online and it also enables them to categorise their spending as they go automatically. 
 
Despite current low-interest rates, Starling Bank offers customers an interest rate of 0.5% per year on all existing account balances up to a value of £2,000 and then 0.25% up to the £85,000 current account limit. 
 
One of the things that business customers like most about Starling Bank is the app’s marketplace. The market place enables business customers to sync their account apps with a variety of third party services. These include Flux which allows companies to digitise receipts, Money Dashboard which links business accounts together, and Wealthify to put surplus money into investment ISAs. 
 
Tide 
Tide, like Starling Bank, wants to provide customers with digital banking services that make managing money easier. At the centre of Tide’s product offering is its app, which provides an overview of transactions and presents them in an easy-to-read format. The app also does what Starling Bank’s app does, and tags spending into different categories, like travel and utility bills. It also lets you switch between multiple accounts to keep your business account separate from your regular private account. 
 
Tide offers a variety of security features which both business and regular customers might find helpful. The first of these is the ability to unfreeze and freeze your account if you lose your card. All you do is log onto the app and instruct it to freeze your account. If you find your card, you can then unfreeze it and carry on as usual. 
 
Tide also provides businesses with a helpful way to create and pay invoices from within the app itself. This feature is ideal for sole traders and small business owners who need to create invoices on the fly and quickly. There’s no need, the company says, to spend Sunday nights going through invoices for the preceding week. 
 
Finally, you can set up things like account limitings, export transactions in CSV format, schedule payments, and create direct debits, without the need to go into a branch. The downside? There’s no interest rate on business current accounts. 

Next week... 

We don't want to overwhelm you with choice on such an important topic, so we've split this blog into two parts. Next week we'll be looking at Coconut and Revolut, and how all the main challenger banks compare to the high street options. We will also be giving our final verdict - are challenger banks really a better option than the traditional high street options? If so - why? And what is the future for our high street banking industry? 
 
In the meantime, if you're convinced that you want to open a business bank account with one of the challenger banks, we would love to help. Why not give us a call or send an email
 
 
 
 
Written by: 
 
Nicola J Sorrell - 
Effective Accounting 
 
Founder | Xero Champion | IR35 Expert 
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