For a long time, traditional banks like Barclays have been the leaders of the UK banking market, and this left small businesses with not many options. But now the digital world has began to change this narrative. The Competition & Markets Authority and the Office of Fair Trading later introduced measures that opened the door to new banks.
Business bank accounts to consider include:
This created the perfect space for digital banks to enter the market. Starling launched in 2014, followed closely by Monzo, Revolut, and Tide in 2015. These banks bring an entirely online experience, meeting the demand for digital services.
Traditional banks began to feel the pressure. Many pivoted their online services, introducing app-based products like NatWest’s Mettle. These innovations are intended to keep pace with the constantly changing consumer behaviours as the world changes technologically.
In the present, nearly 5,000 branches shut down between 2015 and 2020 with more customers having moved online.
How Do Traditional And Digital Banks Support Customers?
Digital banks:
Digital banks prioritise accessibility by bringing services that are available 24/7 through their apps. This makes them particularly appealing for businesses with basic financial needs. Starling and Monzo, for example, have consistently ranked highly for customer satisfaction in surveys.
That said, digital banks often lack phone or in-person support. This can be frustrating for customers dealing with complex issues that chatbots or email systems struggle to resolve. For some, the absence of human interaction is a disadvantage.
Traditional banks:
Traditional banks use their established infrastructure to provide in-person services at branches. This personal method can be beneficial for businesses that require more customised advice or need help with specialised services.
These banks do however have a reputation for bringing slower service. Due to the fact that they operate on older systems and processes, resolving issues can be more time-consuming compared to digital.
Which Bank Is More Affordable For Small Businesses?
Digital banks:
Digital banks operate with lower overheads because they have no physical branches. This allows them to offer lower fees or even fee-free accounts. A lot of these banks also allow free local transactions and minimal charges for international transfers as a way to save costs.
Most digital banks have different ‘plans’, and with this, small businesses can choose services that best suit their needs without overspending. This model appeals especially to startups and freelancers who are looking for low-cost solutions.
Traditional banks:
Traditional banks generally charge higher fees, for things like account maintenance costs and transaction charges. While some do have introductory fee-free periods, these are often limited and may come with conditions.
For businesses seeking to minimise costs, the higher expense of traditional banking can be a deterrent. The added services and in-branch support may not always justify the extra charges for smaller operations.
How Quickly Can A Business Open An Account?
Digital banks:
Opening an account with a digital bank is a quick process. Many offer account setup through their apps within minutes. Verification processes are entirely online, removing the need for paperwork or in-person visits.
This convenience is particularly useful for startups and freelancers who need immediate access to banking services. The ability to complete the process from home or on the go adds to the appeal.
Traditional banks:
Opening an account with a traditional bank is a longer process. Businesses need to submit documents in person and go to appointments at a branch. It can take days or even weeks for the account to open up.
Now, as much as the longer timeline might be frustrating for businesses with urgent needs, traditional banks can still be a better choice for those requiring more complex financial arrangements.
What Do These Banks Offer Businesses?
Digital banks:
Digital banks are good for modern businesses because they have tools such as real-time payment tracking, digital invoicing, and seamless integration with accounting software. These features are convenient for day to day financial management for many small businesses.
However, they often lack services like cash handling or physical payment terminals, which can be a limitation for businesses dealing with regular cash transactions.
Traditional banks:
Traditional banks have more services, such as loans, investment advice, and cash-handling facilities. These services are particularly useful for established businesses with more extensive financial needs.
That said, the additional services often come with higher costs, which might not be practical for startups or smaller enterprises.
Are Digital Banks As Secure And Reliable As Traditional Banks?
Both types of banks go according to strict security standards, with features like two-factor authentication and encryption as a way to protect customers.
Traditional banks:
Traditional banks are often perceived as the more secure and reliable option due to the trust and loyalty gained from all the years of being operational. Their established systems, such as SWIFT codes for international transactions are an added sense of security for businesses.
Digital banks:
Digital banks use advanced technology to keep their platforms secure. But, their need for modern technology in order to function, can lead to occasional issues like outages or system malfunctions, which can inconvenience some customers.
Both types of banks are well-equipped for a secure banking environment. The choice often depends on individual preferences and the specific needs of the business.
Which Type Of Bank Works Better For Cash-heavy Or International Businesses?
Traditional banks:
Traditional banks are pros at supporting businesses that require international payment services or frequent cash deposits. They provide tools like payment terminals and merchant accounts, which are essential for industries that rely on physical transactions.
Digital banks:
Digital banks are better suited to businesses who make a lot of online transactions. While they have fast and convenient services, their lack of physical infrastructure makes them less practical for cash-heavy businesses.
Businesses dealing extensively in cash or cross-border payments might find traditional banks more accommodating due to their specialised services and established global networks.
Which Is Better For Long-term Business Needs?
Digital banks:
Digital banks are great for startups and smaller businesses looking for low-cost, flexible options. They adapt well to modern financial requirements and work well with other digital tools.
Traditional banks:
Traditional banks are still the right choice for businesses with more complex needs. The amount of different services, like loans and investment support, can help businesses grow and maintain financial stability over time.
Some businesses choose to use both types of banks, getting out the strengths of each to meet their everchanging needs. This choice allows them to benefit from the innovation and usefulness of digital banking while retaining access to the specialised services that traditional banks have.
