It may seem like a simple thing but in fact getting set up with a UK business bank account can be a confusing and time-consuming process. Monica Tong, Relationship Manager at Paul Beare Ltd works with clients to ensure they have the right account to fit their business requirements. She says there are different types of account available to a company starting out in the UK.
They can roughly be divided into two categories: High St and Fintech. They are both available to new businesses, but it pays to think about your needs both in the short and longer term to ensure you make the right decision.
In recent years, fintech has emerged as a powerful force in the financial world, offering consumers an alternative to traditional high-street banking. Fintech start-ups have transformed the way people think about managing their money, and many have opted to use digital banks over traditional high-street banks.
“They both offer a range of services, and each business will need to decide on the type of account that best fits their needs,” says Monica.
Here, she answers some of the most asked questions about the banking choices available in the UK…
Q: What are the key benefits of a High St Bank?
A: Firstly, they offer a full range of services: traditional UK banks offer a full range of services, including loans, mortgages, credit cards, and more. This makes them a good choice for people who need a wide range of financial products.
Then there is the issue of trust: traditional banks have been around for many years and are well-established. This gives customers a sense of trust and security that they may not feel with a new fintech bank.
High street banks also have physical branches that customers can visit for face-to-face banking. This can be an advantage for people who prefer in-person banking.
Finally, consider their reputation: high-street banks have a reputation to uphold, with millions of retail and business customers, not to mention the regulators. As a result, they are typically regulated more heavily than fintech banks. This can provide peace of mind to customers knowing that their money is being handled by a reputable institution.
Q: What are the cons to opening a High St account?
A: It can be time consuming – some High St banks can take anywhere from 3 – 6 months, with complex ownership structures, such as those with Trusts where shares are held through can take longer. You will also face higher fees and slower transfers, since traditional banks tend to take longer to process transfers and payments compared to fintech banks. This can be an issue for people who need quick access to their money.
High St banks also tend to have strict policies and procedures in place, making it difficult for customers to make changes to their accounts. This can be frustrating for clients who want to make changes quickly and easily.
There is also the issue of limited accessibility: High-street banks may not have branches in every location, making it difficult for some customers to access their services. This can be an issue for people who live in rural areas or do not have access to reliable transportation.
Q: What do High St banks require of new clients?
A: You must have a UK director and a UK trading address – not just a registered office, but an actual physical presence. Then you also must apply for company tax number and proof of intentions to trade, or historical statements. That can take up to six months. We can help – if you don’t have six months’ trading data then we can open a client trust account or a fintech account in the meantime.
Q: What is a fintech account, and how do they differ from a ‘traditional’ account?
A: Fintech accounts are essentially digital-only accounts that have sprung up in the last five years. They don’t have big physical operations like branches but rely on integration with your business software (like Xero and other tools) to offer online banking. In terms of the compliance angle, they are less onerous and are designed particularly for businesses that have international operations and/or online sales. They have FX benefits as well as company cards and expense management. In short, they can be a good starting point for businesses that are new to the UK.
Q: What are the key benefits?
A: Fintech banks offer an easy-to-use interface that allows customers to manage their accounts from their smartphones or computers. This convenience has made them a popular choice for people who lead busy lives and need quick access to their accounts.
They are also quicker to open, with some fintech bank accounts operational within a few working days. So typically, clients would fill in a quick form, we would identify the Ultimate Beneficial Owner (UBO) and then, they often charge lower fees compared to traditional banks; some even offer no-fee accounts, while others have low or transparent fees.
You will also get a more personalised service, as Fintechs often offer services and products that cater to specific needs. This includes budgeting tools, investment products, and financial advice. This personalized approach has helped many people take control of their finances and achieve their goals.
Fintechs are also good at moving money fast. By using modern technology to make transfers and payments quicker than traditional banks, many fintech banks can offer real-time transfers, making money instantly available to the recipient.
Q: What are the drawbacks of a Fintech?
A: Compared to the full-service High St model, Fintech services are limited. For example, you should expect limited access to branches, and because they usually don’t offer loans, mortgages or credit cards to retail customers, Fintechs will have limited products for business customers. So, you may find that if you need business lending or working capital support you might have to go elsewhere. It’s also worth pointing out that because some Fintechs are regulated differently, they may not qualify for a Sponsor Licence of which one of the required documents for the application to employ migrant workers is an appropriately regulated banking institute.
Finally, there are still security concerns. While fintech banks use advanced security measures to protect customers’ data and money, they may be more vulnerable to cyber-attacks than traditional banks. This can be a concern for people who are wary of online banking.
Q: What about risk? Is my money safer in a High St Bank?
A: Not necessarily. But there are differences: the High St bank model essentially sees the bank take in deposits and lend out funds. As such, they come under the Financial Service Compensation (FSCS) regime that guarantees depositors protection up to a certain amount of money.
Fintechs, by contrast, use Safeguarding. Because they don’t lend money money, every penny of your funds are always safeguarded and remains yours as they’re not allowed to use your money for anything else. So, in that sense Fintechs are exceptionally safe. However, it’s worth noting that in the unlikely event that the bank goes bankrupt then your funds aren’t guaranteed.
Q: What if I just want limited services?
A: If you just want to make payments, move money and run your pension payments through a payroll system then a fintech account should suffice. And it’s worth remembering that FX services tend to be much cheaper – sometimes as much as 80% cheaper.
But, if you’re involved in trade, for instance, buying commodities or goods then you’ll need a traditional bank that will offer you facilities like Letters of Credit and some working capital solutions.
In conclusion, choosing between fintech and high-street bank accounts depends on your business’ financial needs and preferences. “Fintech banks offer convenience, lower fees, and personalised services, while high-street banks offer a full range of services, trust, and physical branches,” says Monica. “Both have their advantages and disadvantages, and it’s up to you to weigh the pros and cons to decide which type of account is best for your business. Ultimately, the important thing is to choose an account that meets the business’ financial goals and helps you manage the company’s money effectively.