Challenger banks are new UK banks and companies designed to disrupt conventional banking teams and the merchandise they provide.
They normally attempt to do that by creating new know-how, or by creating services and products that conventional banks haven’t thought of.
They may even be focused at a selected viewers. Tide, for instance, is a mobile-first bank for small and medium-sized companies.
However whereas they’ve in some ways been profitable, customers don’t but appear able to ditch the banks they know and love.
Right here’s our information to challenger banks for small companies – together with what to look out for when deciding whether or not to belief one, and a listing of the perfect challenger banks for small companies.
What’s a challenger bank?
You can outline a challenger bank as a bank that’s not a part of a ‘big four’ banking group – Barclays, HSBC, Lloyds and the Royal Bank of Scotland.
Because of this established high-street banks like Metro Bank and Virgin Cash are challenger banks. They differentiate themselves from conventional banks by means of the best way they provide their companies. Metro Bank, for instance, units itself aside with branches that open seven days every week, exterior of regular working hours.
However extra lately, the dialog round challenger banks has shifted to mobile-only and digital-first suppliers, which give prospects extra handy methods of accessing their cash.
These banks had been established as a result of conventional banks had been lagging behind technologically. They normally allow you to monitor spending in real-time by means of a cellular app. Many cellular banks can even combine with different apps and platforms, like Xero and QuickBooks, that will help you get a whole overview of your online business’s funds.
As they’re digital-first, you possibly can open an account in your telephone in a matter of minutes and your card normally arrives in days. This makes them enticing for companies that wish to get arrange rapidly, with out the necessity for appointments and conferences in branches.
As a fast overview, right here’s a cellular and digital-first UK challenger bank listing, so companies know the apps to be careful for:
Why select a challenger bank?
Challenger bank professionals
poor service from conventional banks – CityAM reported in 2019 that prospects are irritated about how troublesome it’s to use for a mortgage, and the way banks resolve issues
higher use of know-how – conventional banks are enjoying catch-up with their digital companies, and challenger banks constructed fully round an app usually have extra superior options (for instance, budgeting instruments and integration with accounting apps)
velocity – as talked about, you possibly can normally open an account by means of an app in minutes, along with your card arriving in days
Challenger bank cons
they’re normally new – which suggests there’s extra threat of them shutting down. Whereas your cash must be protected if this occurs, it may trigger extra trouble than you want when working a enterprise. For example, N26 lately shut down within the UK, citing Brexit challenges
not all of them have a banking license – some digital-first companies work as e-money establishments relatively than full banks. This implies you’ll get a form code, account quantity and debit card, which you’ll load up by means of an app. They’re nonetheless regulated, however you received’t get a full account with services like loans and overdrafts – and whereas your cash is protected, it’s not protected to the identical extent (extra on that beneath)
individuals aren’t able to ditch conventional banks – in January, the Monetary Instances questioned how many individuals actually are ‘banking’ with the digital-first startups, mentioning Monzo’s unique buyer base is just 20 per cent. This means that you simply would possibly solely think about using a challenger bank alongside a conventional account
Are challenger banks protected?
Belief in some challenger banks has been shaken by controversies.
Metro Bank confronted hassle in 2019 over an accounting error. It needed to reassure prospects that there was no must withdraw cash.
And in 2020, Wirecard collapsed within the midst of fraud allegations. Wirecard was a German digital funds supplier, with a UK arm referred to as Wirecard Card Options.
Some mobile-only banks that don’t have banking licenses themselves use cost suppliers like Wirecard UK, giving prospects debit playing cards that they’ll load cash onto.
When Wirecard’s guardian firm collapsed, the FCA suspended Wirecard UK’s ‘regulated activities’ to verify prospects’ cash was protected, which left some unable to make funds.
The FCA ultimately lifted restrictions, letting prospects use their cash. Whereas many digital banks are switching away from Wirecard, the episode highlighted among the negatives of utilizing mobile-first banks.
The large one is that if a challenger bank doesn’t have a banking license, your cash (as much as £85,000) isn’t coated by the Monetary Companies Compensation Scheme (FSCS).
That’s to not say it isn’t protected. If a bank doesn’t have a banking licence, they should separate your cash to allow them to’t use it to clear their very own money owed if issues go flawed.
However if you’d like an additional stage of belief, you’ll want to look out for banks which have a banking license and FSCS safety.
Greatest challenger bank for small companies
What’s the perfect challenger bank for enterprise? Right here’s our roundup of among the greatest choices, in no specific order. Be sure you analysis your choices rigorously and select one which fits your online business wants greatest.
Tide is a devoted enterprise banking app for freelancers, sole merchants, restricted firms and rising companies.
As an e-money agency, it doesn’t have a banking license, but it surely protects your cash in a separate account. Plus, Tide has began to supply present accounts by means of ClearBank. In a kind of accounts, your cash shall be coated by the FSCS.
You’ll be able to create invoices by means of the app, in addition to sub-accounts if you wish to have completely different cash pots (like to your taxes or for advertising).
It additionally integrates with different software program like Xero and QuickBooks and you should use it on a laptop computer or desktop.
It’s free, however there’s a bank switch payment of 20p, in addition to a £1 cost for cash withdrawals and cash deposits.
Tide additionally affords paid plans if you wish to unlock extra options:
the Plus plan is £9.99 a month and offers you precedence assist in addition to a 24/7 authorized helpline
the Premium plan is £49.99 a month and offers you all the pieces the opposite plans provide, in addition to a devoted account supervisor and a £1,000 versatile stability
Starling Bank is a completely licensed bank relatively than an e-money supplier, which suggests your cash is protected as much as £85,000 by the FSCS.
It affords each private accounts and present accounts, in addition to enterprise lending services (each overdrafts and loans).
In the event you’re a freelancer or sole dealer, you want an present Starling private present account to use for its sole dealer account. In the event you’re a restricted firm, you possibly can apply for its enterprise account with no need an present account.
As with different apps, you possibly can combine Starling along with your accounting software program. And it has a ‘business marketplace’, the place you possibly can obtain different apps and join them along with your Starling app.
Starling has additionally launched a characteristic referred to as enterprise toolkit to handle admin like invoicing and bills. A helpful characteristic for sole merchants is a real-time estimate of the cash you might want to maintain apart to your Self Evaluation tax invoice.
Starling is free, with a £three cost for cash deposits on the Put up Workplace, as much as £1,000. Something over is charged at 0.three per cent.
The enterprise toolkit characteristic prices £7 a month.
Monzo is among the most well-known cellular banks, they usually’ve now launched a enterprise account.
As with Starling, Monzo is a correct bank. Your cash is protected as much as £85,000 by the FSCS.
Monzo affords all the pieces you’ve come to anticipate from a cellular bank. The Professional possibility prices £5 a month, however companies get entry to options like a pot to put aside a share for tax every time you’re paid, built-in accounting (with Xero, QuickBooks and FreeAgent), and computerized invoicing.
By Monzo, new customers of Xero can entry the accounting platform without spending a dime for six months.
Monzo’s Lite possibility is free, but it surely has a much more restricted set of options for companies.
Monzo additionally has a listing of companies they cannot service proper now, so you’ll want to verify whether or not you are eligible first.
Natwest launched Mettle in 2019 as its digital-first product. You don’t must be a Natwest buyer to make use of Mettle, because it’s run independently.
It’s focused at smaller companies – sole merchants and restricted firms with as much as two homeowners.
Mettle says that it’s bringing new concepts and a recent strategy, “with the security of an established bank”.
However with this in thoughts, Mettle isn’t a bank – it’s an e-money supplier. Your cash isn’t FSCS protected, however they do maintain it protected in a separate account.
It has invoicing and accounting options, and might combine with software program like Xero and FreeAgent. Actually, you possibly can entry FreeAgent without spending a dime, so long as you make one transaction a month out of your Mettle account.
Mettle can be fully free, for now anyway. They are saying there aren’t any hidden prices or transaction charges and can give prospects loads of discover if that modifications.
ANNA stands for ‘absolutely no nonsense admin’ and is one other devoted enterprise banking app. Its gimmick? The app meows once you make a cost – you possibly can resolve whether or not that is a very good or a foul factor.
ANNA makes good on what it stands for by creating, sending and chasing invoices by means of the app.
You too can simply monitor your bills – once you make a cost along with your debit card, the app prompts you to take an image of the receipt. It routinely categorises and shops your bills, that means you don’t have to fret about dropping receipts.
Like Tide, ANNA is an e-money agency, so your cash isn’t coated by the FSCS. And because it makes use of Wirecard, it was hit by the scandal described above. Regardless of funds being frozen, ANNA did reassure prospects that their cash was safe.
ANNA is free, with completely different pricing plans as your online business grows. The highest-tier pricing plans offer you entry to completely different options, like invoices with no ANNA branding:
free for companies with a month-to-month revenue below £500, with a most stability of £5,000
£4.90 a month for companies with a month-to-month revenue between £500-£2,000, with a most stability of £25,000
£9.90 a month for companies with a month-to-month revenue between £2000-£20,000, with a most stability of £120,000
£19.90 a month for companies with a month-to-month revenue between £20,000-£500,000, with a most stability of £700,000
What do you consider utilizing a challenger bank for your online business? Tell us within the feedback beneath.