Virtual banks offer a lot to individuals and small businesses, but they’ve also been recognised as providing a vital economic service for customers: Competition.
The services they offer bring many advantages over traditional banking, such as greater flexibility and speed, lower costs and better integration with other digital technologies, such as e-commerce and mobile.
At the same time, traditional banks are closing bank branches and struggling to provide the level of customer service that these newer brands provided.
In recognition of the potential impact virtual banks and other fintech players have to increase competition, a UK scheme has been set up to help virtual and challenger banks with the potential to shake up business banking.
The Banking Competition Remedies (BCR) scheme was created to help startups and online-only banks in the UK win business from established rivals such as Royal Bank of Scotland (RBS), Lloyds and Barclays with the aim of boosting competition in lending to small businesses.
In February this year, three banks were granted a total of £280 million from the fund to be spent on developing and improving the financial products and services they are able to offer SMEs. The BCR awarded Metro Bank £120 million, Starling Bank £100 million and £60 million to ClearBank, which teamed up with business banking service provider Tide.
This is forcing traditional banks to shake things up and to recognise that the needs of both individual customers and businesses are changing. Customers want a more convenient and accessible approach, in which visits to bank branches, and needing to secure a bank’s approval to diversify or change the way they operated, are things of the past.
As well as schemes to help virtual banking and fintech players continue to innovate around the services they provide, the impact of these emerging players already appears to be having an impact on the services traditional banks provide, particularly for small businesses.
RBS has launched Mettle, a standalone digital bank brand that offers a business-focused current account. It also offers additional services such as invoicing and cash-flow forecasting for small business customers via a mobile app.
Meanwhile, Clydesdale and Yorkshire Bank’s (CYBG) SME-focused digital bank ‘B’ has launched B Works in Manchester. This scheme offers SMEs a range of services to help them develop and grow, including a free coworking space, rooms for conference calls and meetings, and a social media studio for producing content to boost their marketing efforts.
Other banks appear have plans for digital brands in the pipeline: HSBC is reportedly working on a new digital bank to serve small businesses while Santander UK is thought to be developing an open digital financial services platform for SMEs.
For now, virtual banks and fintech brands will continue to offer customers, whether individuals or businesses, services that are more convenient and user-friendly than their traditional counterparts – not to mention as better customer service. Schemes like the BCR, will also help them to stay ahead.
But as we have discussed, the traditional banks are making efforts to retain customers and win back those that have abandoned them for newer service providers. They have considerable legacy infrastructure and culture that needs to be transformed, but these changes are already under way.
The financial services customers can now access are far superior to what they were five years ago. And this is thanks in large part to emerging fintech players. While competition has heated up, it promises to hit even higher temperatures in the years to come, with customers likely to be the biggest winners.