Is 2020 the year of challenger business banking?
Recently – the past two years in particular – has seen a rise in business banking, with challenger banks emerging to take advantage of slow, legacy technology and outdated processes.
Business Banking has evolved and users no longer require to use the big incumbents, there now are many options on the market to choose from. As the first challenger and digital-only banks came onto the scene, consumers loved the easy-to-use apps that gave them financial awareness and control. However, the influx of consumer apps left business banking customers out of the game. The rise of fintech changed that.
Small business banking, in particular, is the most profitable segment. Back in 2013, Management Consultancy Oliver Wyman, stated: “These small, but high-value customers – who “fly under the radar” of purely revenue-based segmentation – present a significant untapped opportunity.”
Two years after Oliver Wyman’s report was published, Tide, which was founded in 2015, was one of the first fintech entrants to focus on business banking, albeit not actually having a banking license. Its approach set a trend for other companies to follow suit, and take advantage of this profitable segment.
The flashy apps that millennials love are finally accessible and available for everyday business. Below we’ve listed challenger banks or specialist finance providers which – in some way shape or form – have embraced the challenge of taking on the incumbents in the business banking world.
Aiming to be operational in 2020, Glasgow-based challenger bank, AlbaCo is planning to offer lending and savings capabilities exclusively for the SME market.
Formerly listed on the London Stock Exchange (LSE), but bought by South Africa’s FirstRand in 2018, Aldermore’s key focus is on the SME market. Aldermore provides high-interest savings accounts to personal savers, business banking services & finance solutions to SME businesses.
Originally founded as CivilisedBank, it rebranded in 2019 and decided to change its name to Allica to coalign with its new positioning and offering. During the process Allica lost its banking license, however, regained it in the second half of 2019.
Allica currently offers business finance and savings accounts but plans to offer business current accounts with deposits, transactional banking, overdrafts, FX, investments, savings and loans.
Allica classifies itself as a “bespoke bank for SMEs offering tailored support and financial expertise.”
ANNA offers a business current account, digital assistant and an app which helps to manage your finances and invoices. They cater for sole traders, freelancers, small businesses, and creatives.
Not a fully-fledged bank or having plans anytime soon to apply for their license, so don’t offer deposit protection, however, it is regulated by the Financial Conduct Authority in that the company that issues the card, Wirecard, has an electronic money licence (EMI).
Cashplus is a specialist lender which was one of the first challengers to the incumbents in the UK pre and post the financial crisis.
“Leading the fintech revolution before ‘fintech’ was a thing. Cashplus is the original UK challenger to banks and the only one to become profitable.”
Cashplus now offers a range of services from consumer accounts, consumer lending, business accounts, business finance and prepaid.
Last year Cashplus recorded its eighth consecutive year of operating profit. Since it was founded in 2005, Cashplus has opened more than 1.6million customer accounts and it now serves 7% of all new UK businesses and expects to comfortably hit 10% share by 2024.
Setup by entrepreneur, and former WorldPay founder and CEO, Nick Ogden, ClearBank is a bank for banks, FIs and fintechs, i.e. a clearing bank, offering customers access to UK payment systems and core banking technology to support current account capabilities.
ClearBank defines itself as banking-as-a-service solution and doesn’t offer any retail services.
First coming onto the scene in January 2018, Coconut is a tool aimed and created for the self-employed. Via open banking, Coconut enables you to have all of your business finances in one location, which eliminates the endless time of trying to find statements and receipts.
Coconut wants to free your time of doing business admin and focus on the tasks that matter. It’s easy to get sidetracked and waste valuable business hours on things such as; tracking expenses, getting paid on time from clients or worrying about tax returns. Coconut wants to solve this issue by combining banking, payments and accounting into one simple product.
Founded by the former founder and CEO of Clear Books, Tim Fouracre saw small businesses losing so much time with inefficient banking and accounting systems.
Similar to Coconut, CountingUp is a business bank account and bookkeeping app. Countingup’s app also takes care of the users accounting; it submits VAT returns, generates a profit and loss report and creates invoices.
Dozens is a relative newcomer on the scene. It refers to itself as “a second-generation digital bank”. Dozens wants to be different from all other challenger/digital/neo banks on the market. It wants to be a mix of all the best tools on the market. This means, an everyday account, a savings ally, a money manager, a financially savvy friend – all in one app.
Dozens’ vision is to create a fundamentally new model for banking – one where we only make money when our customers do.
Technically Dozens doesn’t at the moment have a business banking offering, but plans to open its business banking model in 2020.
Fire is a multi-currency business account for businesses based in Ireland and the United Kingdom. Fire is a fee-free account and is great for businesses that do business around Europe due to its real-time payment feature.
Fire states that each account can be live and active within a 24 hour period.
Gravity is a new SME-focused bank in the UK. The bank will be a digital, cloud-first business, as it finds it essential to its success and growth.
Gravity recognised from the start of its journey that a digital, cloud-first approach is essential to its success.
Metro Bank was the first new high street bank in over 150 years. Metro Bank is a full-service banking entity, which has 68 branches nationwide that are open seven days a week.
Metro offers a range of banking services ranging from retail banking to commercial banking and business banking.
In their business banking unit, they have a lot of products; credit options, business accounts, invoice finance, asset finance, loans, deposit accounts and safety deposit boxes if fancy something extra secure.
2019 saw the bank encounter some issues and problems, which severely affected it financially and further damage its reputation. In order to keep its banking license, Metro had to raise further capital by the end of 2019, which it just about managed to accomplish.
RBS-owned and operated by NatWest, Mettle is a new challenger bank that emerged onto the banking scene back in November 2018 in beta, with the full-service offering launched in 2019. The bank was introduced to combat the challenger bank threat.
RBS has a tarnished reputation for the way it handled SMEs during 2008-2013. RBS was accused of asset stripping small business customers who went to one of Britain’s ‘big four’ for help. Its latest foray into banking is Mettle. Mettle offers a business bank account which comes with a physical card, sort code, with the option for instant invoicing and tracking of expenses. To qualify for an account you must either be a sole trader or limited company with up to two owners.
Monzo is one of the UK’s favourite brands, its coral-coloured card is a hit with millennials and the younger generation. Ever since its original launch as Mondo in 2015, the challenger and the digital-only bank has experienced rapid growth and turned into a marketing machine. Consumers love the app and what the banks stand for, a big swaying point when users feel let down by incumbents post the financial crisis.
The top three reasons customers say they turn to financial products from non-traditional players are lower costs, ease of use, and faster service, according to Capgemini’s research. Overall the challenger and digital-only providers provide an all-round better service when compared to the incumbents.
Post Monzo’s funding latest funding round, they started offering out their business banking solution. Monzo advised companies that if they met the criteria, they could sign up to join the waitlist.
Currently, Monzo’s business banking feature is still in its beta phase whilst it’s tested and built out, with features and developments updated on the product roadmap.
N26 is one of the fastest-growing and most valuable fintech businesses globally, and when founded in 2013, N26 had 100,000 customers by 2016 when it received a European banking license. Since then, the bank has expanded across 26 countries and has more than 3.5 million customers. It aims to grow that number more than 14x in 10 years.
Back in 2017, N26 announced that business bank accounts were now available for freelancers and self-employed workers across Europe.
January 2020 saw N26 reach five million customers across its business and consumer banking units, which proves how people across Europe are adapting to digital banks.
It doesn’t have a distinctive coloured card or a slick app aimed at millennials, most of the population probably haven’t heard its name at all. OakNorth is actually one of the UK’s fintech biggest success’.
OakNorth is a fintech company that really embraced the market opportunity that it was presented. At the time financial services for SMEs was very limited, OakNorth stepped up to cater for the underserved market.
The lender is a rare example of a profitable fintech business – investors love this, and a big valuation follows. Valued at nearly $3bn, OakNorth has quietly grown into one of Europe’s biggest tech companies.
OakNorth, which will be four in September, could overtake Lloyds’ lending business by 2020. The 254-year-old institution grew its lending balances to SMEs and mid-market businesses by £3bn in 2018, but OakNorth is growing by £1.2bn in the same period, taking a 2% market share in SME lending.
Amir Nooriala, Chief Strategy Officer at OakNorth said in an interview: “OakNorth is Europe’s fastest-growing fintech by assets, profits and revenue.”
Oxbury is a specialist finance provider in a market which is very important to the British economy. The challenger bank for the agricultural industry say they are the only bank that will have a singular focus on British farmers – something Oxbury says has never been done before.
The Chester-based financier is open for business in 2020 and recently secured their banking license, the neobank plans to offer savings accounts to the general public and all businesses.
Oxbury wants to support the world-leading industry in moving to an even more sustainable and productive future, while simultaneously backing farmers and the future of UK agriculture.
There are a plethora of business banking apps in the UK, and this Danish fintech is another example that helps companies manage their expenses. Founded in 2015, expense management software Pleo enables managers with real-time overview over company spending, flexible card limits, automatic expense categorisation and direct accounting system integrations.
Since the outset, Pleo has raised $80m in funding.
Fresh off a $115m Series C funding round, Qonto is a French neobank that operates for the SME market as well as freelancers. These banks have a significant opportunity to address gaps in SME banking where incumbents fall short. According to the Qonto, “business banking in Europe is broken”.
Challenger banks have been an attractive industry for venture capital activity, as firms continue to pop up and try to disrupt the status quo.
Qonto’s new funding will help the company grow its headcount from 200 to 300 within a year, and help to secure a credit institution license by year’s end that will allow it to become a fully-fledged bank. It mainly operates in mainland Europe, but does have plans to expand into the UK, but as the UK market becomes more saturated, we’re not sure how likely those plans will be actioned.
Y Combinator graduate Rebank is one of the latest challenger banks preparing to take on the incumbents. The startup, which secured its seed funding round in December 2019, is a new digital business banking platform that runs on top of existing business bank accounts – basically an over the top (OTT) layer, similar to how fellow fintech Curve operates.
The digital banking platform says it’s currently working with 70 start-ups and mid-sized companies, although it’s an invite-only phase at the moment. Business banking today isn’t designed for collaboration; Rebank aims to change that and will share more in early 2020.
The platform can consolidate real-time money transfers across multiple bank accounts held by businesses in one place and be used to initiate payments.
Headed up by the former Managing Director of Metro Bank commercial and mortgages arm, Jason Oakley announced on LinkedIn that the bank should be operational in the first half of 2020.
The SME-focused bank hasn’t yet announced the products or services they plan to offer, and no further information has been provided by the team behind Recognise. Looks like it’s a waiting game, before we know more regarding their business banking offering.
Redwood is another SME challenger bank. The bank has now been operational for a few years and is a real alternative business bank for the SME market.
The bank positions itself as a bank for small communities and local businesses that knows what it takes to manage and grow small and medium sized organisations. It also offers a variety of services such as; secured SME lending products to owner occupied businesses, as well as to commercial and residential property investors – also providing savings and deposit accounts.
Another newcomer to the banking world, the Revverbank team is creating a lending and savings bank that challenges the standard business banking status quo. Their main aim is to have an impact on the regions they operate in and build lasting relationships with these businesses. The Manchester-based digital neobank is hoping to launch in 2020.
Started back in 2015, currency and payments company Revolut has experienced rapid growth to turn into one of the most successful and valuable startups in Europe. During the short period Revolut has been around, Revolut has shifted its focus from being a prepaid card for travel to expanding its suite of products to; money transfers, cryptocurrency, insurance, trading, business accounts and most recently savings accounts.
Revolut’s business offering came to market in June 2017, with the aim of disrupting the high currency exchange rates and inflexible multi-currency business banking needs. One easy reason why Revolut has grown so quickly is that it can operate in 24 markets and in over 200 countries.
Shawbrook is a specialist savings and lending bank, offering loans, residential and commercial mortgages, business finance, and savings products.
Unbeknownst to some, Shawbrook has quietly become one of the oldest challenger banks in the UK banking landscape. Shawbrook offers a range of services for business banking and consumer banking requirements. As somewhat of a growth enabler, Shawbrook invests or deploys capital at the start of a businesses lifespan, startups and growing companies are key examples of this.
The rise of fintech firms in recent times has improved and enhanced a lot of services, however, business and work expenses wasn’t one of the first areas to be innovated.
Managing business expenses can be a nightmare, and can sometimes be very long-winded and tedious. Soldo brings together banking, accounting and the administration side of filling expenses which streamlines and eliminates the need for employees to spend time doing it.
Although not initially designed for your everyday day-to-day business banking needs, Soldo has the functionality for this. The company has no plans to extend this beyond this feature and issue financing, loans or investments.
One of the original challenger banks and the UK’s fintech darling trio – along with Monzo and Revolut – under the guidance of the experienced Anne Boden, Starling has grown into a slick, fast-growing and heavily funded digital-only bank that has won market share from the incumbents.
Starling’s business offering was launched in 2017, and in January 2019 the bank announced it will start originating unsecured SME loans up to £250,000 as it plans to launch an expansion of its business and sole trader bank accounts.
Starling is planning to become the UK’s first digital-only lender to be listed on the stock market in 2022.
One of the original fintechs that focused on business banking. Tide has since established itself as one of the go-to players in the market, especially for SMEs. Tide claims it is one of the world’s first mobile-first banking services for SMEs.
Tide’s target market would be freelancers, self-employed, small businesses and scaling companies. The tech-led product has an easy-to-use interface which caters for Tide’s basic, plus and premium products.
Fintechs have embraced business banking as it’s currently an underserved market opportunity. Some of the participants included above also secured big funding rounds in 2019, which give them further opportunity to grow in 2020 and beyond.