What are the main challenges for businesses using traditional banking?
If you’re running a small business, you’ll need a business bank account, meaning you may be banking with one of the major high street banks. Traditional banking has long held a virtual monopoly, but the rise of challenger banks and disruptive FinTech in the open banking ecosystem is changing the way banking is done.
If you own or run an SME, it might be time to change. Your current business account may offer a few perks but, fundamentally, the offer from the Big Nine is the same. A business account will help you pay taxes, make payments and separate your business expenses from your personal ones.
But traditional banking can be challenging for SMEs which require agile and proactive financial services that meet their needs.
Slow to respond
Traditional banks are increasingly regarded as bureaucratic and slow to meet their customers’ needs. Since the 2008 banking crisis, banks have suffered a crisis of trust. Despite their advantages when it comes to expertise and infrastructure, customers are now used to engaging directly with suppliers. They expect their needs to be anticipated and met by their bank. And they expect that response to be quick and customer-focused.
Lack of trust
Tied up with the concept of lean and agile banking are the desire for integrity and ethical practice. Traditional banks have suffered reputational damage since the financial crisis. They have been slow to change practices that have brought them into disrepute, and they’ve been reticent to offer the flexibility of loans and services that SMEs require or to demonstrate the ethics that many SMEs practice themselves.
Little or no stimulus for saving
Even with interest rates at historic lows, most traditional banks are offering rates that provide little or no stimulus for saving. For SMEs that want to create a long term financial plan that allows them to control and cover their expenses to head off a cash flow crisis, their money isn’t working hard enough.
Cards aren’t foolproof
Traditional business accounts rely on business credit cards and debit cards to move cash around, but cards aren’t foolproof. Any credit or debit card linked to your business account comes with risks attached. Unless access to expenses and funds are highly monitored, your business could be the victim of card misuse and other fraudulent activity.
Lack of oversight or insight
Traditional business accounts can be deeply flawed when it comes to real-time oversight and actionable insights, such as:
- You may be able to review transactions but have to wait for your statement before you can track any fraudulent behaviour
- Your transaction data doesn’t deliver actionable insights, only raw data
In comparison to other industries, banks are poor at using data analytics to create a customer experience. The failure to do better presents a challenge to SMEs who require better oversight and insights in real-time.
As traditional bank branches close their doors and branch visits are declining, 71% of bank users are accessing their banking information online. Online services offered by the Big Nine banks have several disadvantages:
- Insecure or insufficiently encrypted data that can be targeted by hackers
- Regulatory issues result in different banks providing different levels of service
- Access to online banking can be vulnerable to viruses
- Security risks including theft of mobile devices and loss of sensitive financial information
Steep transfer fees
Traditional banks often charge fees that can add up to a significant amount throughout the year:
- On bank transfers above a certain amount
- On international transfers
- On the use of credit and debit cards overseas
These steep fees can often force businesses to spend time and money looking for an effective workaround.
Poor customer experience
Bricks and mortar banks have continued to use the same basic model for years, offering very little differentiation except for price between organisations. This lack of real competition has traditionally made banking ‘sticky’, with SMEs unwilling to go to the hassle of changing banks for the sake of a few pounds.
However, that poor customer experience based upon privileged access is under threat. FinTech startups and challenger banks are in a better position to exploit the opportunities offered by technological change and to deliver the proactive and responsive products and services that SMEs are interested in.
Are traditional banks changing?
Three key trends are driving a change in the world of business banking:
- Banks are being forced to abandon the one-size-fits-all approach and are beginning to deliver customer experiences that respond to SMEs unique needs
- Banks are sharing data through APIs with disrupter startups. In turn, this is putting pressure on the traditional banks to revise and renew their offering to SMEs
- Banks are embracing the open banking ecosystem and delivering actionable insights, expense reconciliation and real-time cash flow analysis through partnerships with third-party FinTech providers
Seamless financial experiences that centre around you as the business customer is the future. Make sure that your business banking passes muster!