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Will more businesses turn to specialist banks in 2018?

Jordan Williams | 17:00 Wednesday 7th February 2018

A dramatic rise in businesses switching to challenger banks when it comes to their savings is unlikely this year, a specialist bank has claimed.

Last week, OakNorth released data revealing that UK businesses were collectively missing out on over £532m a year in additional interest by keeping their savings with one of the big five banks rather than a challenger.

Research by the specialist bank found that 74% of the £66.6bn saved by SMEs in deposit accounts was held in these big banks.

Figures released by Close Brothers also found that just 17% of UK SMEs believed their high street bank fully understood the specific challenges of their business.

This highlights the demand for a savings proposition that caters for businesses' specific needs, which a number of specialist banks have looked to meet.

What products are out there?

Last month, Virgin Money announced the launch of a new instant access business savings account for SMEs, while Masthaven revealed plans to roll out new savings products for business customers in November 2017.

Wyelands Bank launched its own business savings account aimed at industrial, trading and manufacturing firms last September, while just four months after securing its initial banking licence, Redwood Bank introduced its 35-day business savings account.

Nick Wakefield, treasury and deposits product manager at United Trust Bank said businesses should be taking a close look at their deposit accounts.

“Where companies don't need to keep all of their cash on instant access, they should consider moving at least some of it to a higher-paying account, even if there are some withdrawal restrictions.

“Companies work hard to earn their money and these accounts enable that money to work harder for them.

“Specialist banks offer companies deposit accounts with competitive rates and high levels of service, so business owners and finance directors should be looking beyond the high street to find such deals.”

 

Joel Perlman, co-founder at OakNorth Bank (pictured above), believed that it was unlikely for there to be a significant rise in business account switching to challenger banks in 2018.

“The CMA Retail Banking Investigation revealed that 82% of businesses using [a] fixed-term savings account do so with their main business current account provider, and if there's one thing the Current Account Switching Service has demonstrated since its launch in September 2013, it's that inertia is extremely high and switching is still extremely low.

“I, therefore, don't see any reason why in 2018, we're likely to see a dramatic rise in businesses switching to challenger banks when it comes to their savings.”

Ksenia Bejenar, chief executive at SynerGIS Capital, agreed with OakNorth that businesses were indeed missing out on interest by sticking with traditional banks.

“Many enterprises are sitting on significant cash balances in their traditional business bank accounts, which earn paltry rates of interest (0.2%).

“Significant rate pick-ups can be achieved by diversifying providers and allocating funds to appropriate fixed rate savings accounts and savings bonds products.

“Many challenger banks have opened their business banking propositions in the last 18 months, which are offering superior levels of service and returns.

“Some challenger banks are also offering free ancillary services to their SME clients, such as real-time international payments and invoicing and accounting services.

“Challenger banks with fresh technology and infrastructure can offer streamlined onboarding for business customers, which has previously been cited as barrier to SMEs switching accounts.”

Support through thick and thin

Ian Rand, CEO at Barclays Business Banking, believed that competition was healthy.

“It keeps business banks – like the one I lead – constantly thinking about how best to serve our SME clients, and striving to genuinely transform the services we provide.

“High street banks have economies of scale to invest in pioneering services like big-data analytics and instant mobile lending to help small businesses understand the financial ins and outs of running their firms and growing them quickly.

“Think about a pub landlord who is facing financial trouble.

“A niche provider may say the only way to pay back their loan is to sell their assets and lose the pub.

“While challenger banks may seem like a quick and easy option, it's important to consider whether they have the scale and resource to help you should trading conditions become difficult.

“We all know the economic conditions can change and it's important to think about whether your bank would support you through thick and thin.”

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