/ Industry

Why digital banking is catching on for SMEs

Small and medium-sized businesses are embracing virtual banking as an alternative way of conducting their financial transactions. It seems a natural fit.

Recent research by IT company Unisys found that UK SMEs are interested in making the switch away from traditional banking to a more digital approach. Of the 450 SMEs surveyed, one in six said they are planning to switch banking services in the next 12 months. Nearly half said they would move to a challenger bank, digital bank or non-banking brands, rather than more established brands.

Eighty-three per cent currently use mobile banking, with nearly all those surveyed using some form of online banking. In addition, almost 40 per cent said ‘little-to-no human interaction’ would be acceptable and more than half would value an app that gave them access to all their banking facilities in one place.

Unisys suggests one driver in this change of attitudes could be the Open Banking initiative aimed at improving competition in the banking sector. It makes it easier for customers and SMEs to give access to their transaction data, compare accounts and access new products. Unisys found that those SMEs aware of Open Banking are 3.6 times more likely to switch banks.

But it’s not surprising that small businesses are open to taking a new approach when you consider the benefits virtual banking offers to small businesses over the business accounts provided by more traditional banks.

To start with, traditional banks don’t always adequately serve the needs of smaller businesses. Indeed, Unisys found the main incentive for businesses to switch banking providers was to better meet their needs.

Business bank accounts often come with fees that rise sharply as turnover increases. Furthermore, certain services, such as receiving payments from outside the UK, may not be supported by some business accounts.

Virtual banking also removes much of the complexity of traditional banking. For example, the settling of invoices and payroll may be made much less onerous by enabling multiple payments with the click of a mouse button.

With fees often deducted at source, virtual banking simplifies the payments process, and gives business owners a near-real-time view of finances. Virtual bank accounts also provide an online record of payments to give a clear picture of where money is coming from and going to, which can help resolve errors or disagreements more easily. And for businesses dealing with customers and suppliers in different countries, a single virtual bank account can be used to collect, hold and send payments in multiple currencies and channels.

The lack of branches, meanwhile, means there is no need to travel to a bank to set up new accounts and transactions. Customer service is typically available at any time of the day, and balances and transactions can be managed online or via mobile device. Furthermore, as virtual banks have no branches to maintain, their overheads are lower, meaning interest rates can be higher and any charges for transactions – whether domestic or international – are considerably lower than traditional banks.
All of these elements make virtual banking a simpler and more flexible solution for small businesses, meaning they can instead focus on efficiency, innovation and recruitment, all areas that can drive their businesses forwards.

As these benefits become clearer over time, small businesses are becoming increasingly willing to make the move to virtual banking.

ePayments team

ePayments team

Read more posts by this author.

Why digital banking is catching on for SMEs
Share this

Stay up to date! Get all the latest & greatest posts delivered straight to your inbox