Should your startup be using a challenger bank?

Challenger banks in the UK are big news. They’re at the forefront of the fourth industrial revolution and are disrupting markets at home as well as internationally.

As a company looking to bring about change in your sector, is it a good idea to be supporting banks doing the same thing?

We’re going to give you the rundown on some of the challenger banks that should be able to meet your needs as a company leader with scaling on your mind. At the point where you’re laying the blocks on which to build your empire, making sure you’re with the right financial institution is key.

Out of the blocks - Starling Bank

Back in 2014 Starling started out offering simple, personal banking, Its tech was built from the ground up thanks to investments totalling £223 million. The CEO is Anne Boden, a woman who has been at the forefront of technological innovation in banking before it was cool - she was the woman behind the CHAPS payment system.

Starling has only just got into banking for bigger businesses. It launched the accounts for private limited companies in July 2019. The account does have some limitations at this point as it’s only available to companies where the directors are people of significant control (PSC).

If you fit the ownership criteria to have an account with them, you’re going to be jumping into a bank that does things differently.

Boden said, “with no branch network or IT legacy systems to maintain… we have a highly capital-efficient business model,” in her annual open letter.

Coming up in the near future for Starling is…

  • A marketplace of fifty apps ready for business customers
  • Online banking to complement the existing app
  • Expansion into new cities and an Irish Banking License
  • Business lending facilities

For merchant services, it has recently partnered with SumUp. It is offering a wireless solution to contactless card payments and they’re making sure settlement is faster than the normal processing times.

Banking with Starling is going to be a different experience. There are no branches, but you can use the post office to make cash deposits. It might not suit the needs of all scaleups at the moment, but it’s definitely one to have one your Twitter feed so you’ll know when it expands to bigger company structures.

Going global - Transferwise

Two Estonians living in London set up Transferwise when they got frustrated with getting money home to pay bills. It has been a stunning success. The most recent round of investment saw the business achieve a valuation of £2.3billion and it has employed more than 1,600 people since its inception in 2010.

You’re still going to need a traditional bank account if you do business with Transferwise as it doesn’t offer options such as:

  • Direct debits
  • Bulk payments
  • Cash deposits

But it does have some fantastic foreign currency services. If you’re doing business outside of the pound, at all, then investigating what Transferwise can do for you is a wise move.

Its last update in November 2018 saw it add a Mastercard debit card and launch its API. This can really change the game for companies of all sizes. Transferwise has basically opened up some of the technology it uses to power its bank and any company can take advantage of it for:

  • Payment automation
  • Connecting Transferwise services to your own products
  • Reconciling inward payments

All of this is free, customisable, and ready for your IT department to sink their teeth into.

Even if global domination isn’t quite on the cards yet, having the ability to settle invoices that come in from overseas - or working with internationally-based contractors - are all cheaper with Transferwise’s services.

If you can get its services integrated into your finance department at an early stage you’re setting yourself up for much easier expansion.

The old school one - Co-operative Bank

The Co-op Bank can trace its roots back over a hundred years, so you might not expect it on a list of tech savvy challenger banks. Although it fared well through the 2008 crash, a poor executed merger and failed attempt at massive branch expansion saw the bank hit troubled times in 2013 and again in 2017. The imminent collapse of the bank led to a ‘bail in’ by hedge funds buying it from the original Co-operative Group.

Fast forward to today, and the bank has reemerged more nimble and ready to take on the big four high street banks once more. It has shed its corporate banking options and is developing an SME proposition, working with everything but public limited companies.

To that effect, it was the recipient of a £15million grant from the government’s pot of money from the sale of RBS - the Banking Competition Remedies fund. It is using the money to improve its online interfaces, make its products better, and get ahead of the curve in automation and infrastructure.

Worth noting too is the ethical policy it has, which means they won’t do business with companies that do animal testing, deal in arms, work in the tobacco industry, and a few other areas.

If your business is working to do things the right way, being with the Co-op is one option to show ethics are truly embedded in your business decisions.

Is it worth switching accounts?

It’s definitely worth taking stock to see if the account and overall financial package you’re using is right for your needs. Could it be useful to have an innovative financial service provider on your side as you start to have more needs?

Getting in at the start of the banks’ progress may allow you better access to whichever bank you go for - the challengers are known to be more responsive to the demands and suggestions of their customers. Being one of 50,000 businesses is going to get you listened to more than being one of 5 million, after all.

The process is probably going to be easier than you imagine. The government has been putting pressure on the banking system to make switching bank accounts easier. Once you’ve decided who you’re going to go in with, open up your account and tell your new bank to get moving on the switch - pretty simple.

Timing is never going to be perfect to go through this type of upheaval. Get it done now, future-proof your finances, and reap the rewards of lower costs and a sleeker financial performance. Your accountant and shareholders will thank you for it.