Fintechs like Monzo, Revolut and Starling are best known for their consumer offerings, but a new report shows the progress digital-first banks are making among business customers, while also sketching their limitations.
The report: Research and advisory firm Savanta’s The rise of digital in business banking, which is available on WARC, is based on the agency’s MarketVue continuous survey of financial decision makers and a one-off poll of more than 2,000 businesses.
The study shows that 10% of start-up businesses currently have their main business account with a neobank, though across the broader business spectrum just 2% of firms use a digital-first bank.
Why it matters: With high barriers to entry, tough regulation, and a typically disengaged user-base, banking has mostly faced disruption from within the market. Neobanks came along with something completely different: user-experience design and a we’re-on-your-side tone that caught the attention of many consumers.
But the revolution has not been so simple. Many people use their neobank alongside a traditional provider. Business banking is a new feature for Monzo, while for Starling it is just over two years old, though even this slight maturity played to the latter’s advantage.
At a business level, the advance of new companies building capability with modern and constantly-updated architecture at the core is potentially dangerous to incumbents, but as this new study shows, there is a societal barrier to their rise: cash.
“One in six businesses say they already use a digital-only banking solution – meaning they are interacting only via digital channels or are using a digital-only offering from their banking provider,” the report notes. “This includes customers from Barclays, Lloyds and, to a lesser extent, NatWest and HSBC, as well as the challenger and neobanks.”
While around 40% of respondents say they would seriously or possibly consider a digital first bank, 38% are outright rejectors. Age and physical cash reliance are important factors here. The good news for neobanks is that rates of distrust are very low.
“Reasons for rejecting a digital-only offering are understandable – having face-to-face contact with your bank is important for many business owners”, says Kate Turner, VP Financial Services at Savanta.
“But how long will these objections be in place? The coronavirus pandemic has changed the business environment. The need for branch services could rapidly diminish with fewer businesses transacting via cash and more using digital payments.”
Big idea: Bank infrastructure is becoming as much of a concern as trust. Finance is not the only industry weighing the cost of a physical presence against the agility of the digital world. The question will be how long-cash reliant businesses remain that way, and how important these customers are to the growth of neobanks.
Sourced from Savanta, WARC