At the height of the global financial crisis a decade ago, as consumers became increasingly dissatisfied with the service they were getting from traditional banks, a new wave of challenger banks seized the opportunity to get a foothold in the retail banking market. 

At the same time, the rapid emergence of apps and other digital platforms made it much easier for these challengers to build a strong customer base with minimal start-up costs. 

Today, however, challengers are increasingly switching their attention to the business banking market. This is happening for two main reasons: 

  • Firstly, the level of competition in the retail market has increased significantly
  • Secondly, while challengers have been extremely successful in bringing in retail customers, it has not always been easy for them to achieve sustained growth with a retail-only offering

These factors have led challengers to explore new ways of monetising their service offering.

The time is right for challengers  

It’s easy to understand why many challengers have now chosen to target businesses, particularly smaller and medium-sized companies; it’s a huge market, with nearly six million SMEs in the UK alone. 

In recent years, there’s also been growing recognition of the need for greater competition in the business banking sector, and the need for businesses to have easier access to a wider range of financial products and services. 

This has presented an opportunity for challengers. Last year, for example, Starling Bank received a £100m grant from the Capability and Innovation Fund to build out its business banking offering. Fintechs are ideally positioned to meet the evolving needs of smaller businesses.

Anne Boden, CEO, Starling Bank, comments below.

She says: “We’ve always believed that financial technology can, and should, make banking for small and medium-sized enterprises quicker, smoother, fairer and more transparent; that it should put entrepreneurs in control and have customer support on hand 24/7, at precisely the moment they need it. We are delivering all this for our business customers and providing the support they need to fly.”

Boden says Starling Bank is built on technology that allows it to offer a scalable and resilient service round-the-clock, without being tied to a particular location. She adds: “This means we are ideally suited to respond well to crises, like the coronavirus emergency we are experiencing now – we have been built for this.”

Making the leap from retail to business banking

Challengers have a huge amount to offer in the business banking space, but what does it take to succeed?

Firstly, it is important to understand that, like retail customers, businesses have high expectations in terms of service offering. Many business customers are microbusinesses, with owners who expect the same level of service as they receive on the retail side. 

The key challenge, however, is the need to offer an entirely new product and service set for business customers. 

Because many challengers don’t have the capacity to launch a dozen new business products simultaneously, the marketplace model has become increasingly popular, with challengers offering off-the-shelf financial products from third-parties. 

Helping Financial Institutions in the business banking market

The success of a business banking model hinges on the ability to offer easy access to a range of financial products, and a simple mechanism for making, receiving and tracking payments. 

At Currencycloud, facilitating international payments is our bread and butter. With the launch of Currencycloud Spark, we’ve gone a stage further in helping financial institutions to build out their business banking offering. Currencycloud Spark enables them to offer multi-currency accounts to their business customers to collect, store, convert and pay in more than 35 currencies.

“Currencycloud Spark has been developed to increase control, flexibility, and accessibility for businesses when making and receiving payments, which allows them to take back control over their finances when doing business internationally,” says Peter Daunton, Product Owner for Collections at Currencycloud.

“SMEs face numerous difficulties when receiving money from international customers, however, through Currencycloud Spark we alleviate some of those challenges, such as the amount of time funds are held up in the payment system, the ability to reconcile funds with invoices and the receipt of the full invoiced amount.” 

In addition, through the real-time payments tracking system, SWIFT gpi, every international payment can be tracked at every stage of the transaction, giving business customers the visibility of funds that is vital in modern supply chains. 

Challengers primed to seize business banking opportunity

When it comes to competition for business banking, traditional banks are largely focused on the threat from big tech companies. This presents a huge opportunity for challengers to increase their market share. 

In order to do this, they need to play in the same digital playground as their business customer base. And key to this is partnering with the right fintechs to offer a seamless, integrated payments offering.

Read more about how Currencycloud Spark can help businesses to navigate the complexities of cross-border payments.

Currencycloud

Currencycloud‘s payment technology is the power inside countless businesses, driving the transformation of the global payments landscape. We're reimagining the way money flows through the global digital economy, allowing payment firms to remove the friction and inefficiencies of traditional cross-border payments using our flexible APIs.