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Over a quarter of small and medium-sized enterprises (SMEs) are considering moving to accounts offered by challenger banks, according to research.
The survey of 500 senior decision-makers at SMEs, carried out by review website Smart Money People, revealed that over half (51%) of SMEs are looking to change who they bank with this year.
Of these, 54% are considering moving to a challenger bank, while 46% are considering moving to a traditional high street bank, the results revealed. The survey also found that 80% of SMEs currently use the latter.
These challenger banks are user-friendly and not burdened with the high costs of operating a traditional one. With no branches and a fraction of the workforce, made possible through technology and changes to regulations, challenger banks have grown to create a new industry known as fintech.
But they are often seen as a second spending account, with customers doing most of their banking through a large traditional bank while using the digital bank for everyday spending. They are also traditionally regarded as banks for younger, more tech-savvy generations.
This is changing, however, something that was highlighted last year in the Competition and Markets Authority’s (CMA) SME business banking customer satisfaction ranking, which revealed digital challenger bank Starling came top in terms of customer satisfaction in three out of four categories in which it was ranked.
Jacqueline Dewey, CEO of Smart Money People, said these banks have managed to attract consumers and that businesses could be next. “Our research shows that 2023 may be the year when small businesses follow this trend and make the move to what is often a quicker and more convenient banking solution,” she said.
Read more about digital challenger banks
- Despite an acceleration in the use of digital banking services, challenger banks face the obstacle of winning customer trust.
- Traditional banks face challenges in the coming years due to an increasing number of millennials only using digital banks.
- App-based challenger bank Starling has seen a huge rise in its number of business and retail customers, despite the Covid-19 pandemic.
Dewey added that the main reasons for switching to a business account from a challenger bank are lower fees (45%) and higher interest rates (33%), but the survey also found that SMEs are attracted to better online banking services (33%) and better customer service (29%).
There are increasing numbers of challengers emerging as high investment continues to pour into the sector. “As well as the many well-known challenger banks and fintechs, there is an increasing number of even newer providers, often branded ‘neo-banks’, which are also looking to attract business customers,” she said.
“While the challengers have built up a degree of trust in the past decade or so, these neo-banks are still very much an unknown quantity in the small business banking world.”