Deciding on the best bank account for your UK business may not seem like such an urgent or tricky question. After all, a popular view is that they’re all essentially the same: access to funds, basic banking services, an overdraft and ‘working capital solutions’ all delivered largely online and occasionally in person.
However, over the past decade the UK has seen an explosion in the variety of banking services on offer, largely driven by regulatory changes and developments in technology like Open Banking.
Trading places
There are some companies that will undoubtedly benefit from the offering that fintech accounts provide. Any business that operates inside the UK that is dealing in sterling and is then trying to repatriate those funds to parent companies may find that the USP offered by many Fintechs – a competitive exchange rate – is the clear favourite.
“They’re better off doing it through a fintech account because they get a preferential exchange rate,” says Glenda Tickle, Head of Operations at Paul Beare Ltd. “And the difference can be quite significant, depending on the amount.”
And it is true that some Fintechs might be seen as closer to money transfer technology companies rather than banks; certainly, banking authorities in the UK do view them differently to the established banking sector and have so far limited their licenses to offer a broader range of services.
To understand the limits of what a fintech might be able to offer, it’s worth checking whether they’re PRA and FCA regulated. So, for instance, if your business would like to apply for going for a sponsorship license to hire skilled workers from outside the UK, including those from the EU, you would have to have a PRA regulated and an FCA regulated bank account in place. And while a growing number of Fintechs are applying for FCA and PRA registration, that is a slow process, and it may also impact their cost model and therefore their prices.
Making the world go round
But it’s important to say that what they do offer – easier set up and lower charges especially around FX – can be helpful for a growing business. “They are really good when you’re looking to move money around the world,” Glenda says. “The exchange rates are lower because they compete on that basis, so there’s no question that the development of fintech has been a boon for many UK businesses.
The time required to set up a fintech account is certainly less, and the costs involved, as compared to a ‘traditional’ account may be lower,” says Glenda, who explains that a high street bank account can take six months to open and cost a significant amount in the process. The reason for that potential cost impact stems from the uncertainty as to whether the High St bank will in fact agree to offer an account.
“Any stumbling block along the way and they can say, ‘We’re not interested’, says Glenda. “So even though they’ve given us an indication that they are interested, we are fully aware that they could reject it.”
Service limits
However, it is also true that fintech providers have their drawbacks. Firstly, they, may not be able to transfer funds to the desired country. Several of the most prominent Fintechs have a list of territories where they don’t operate, usually as a result of the risks involved.
We certainly see that happening so it’s important that our clients set out at the beginning their likely needs going forward, where they might be operating and so on, so we can assess the Fintechs and help them decide the best option for them, says Glenda.
Second, and perhaps most important, the limits of what a fintech can offer your business may well become apparent as you grow and demand more from a bank. “So for instance if you take on employees, you’ll need to set up a payroll with direct debits, something a fintech might not offer.
Indeed, any scenario where you’re employing people immediately ‘ups the ante’ on what you’ll need from your bank in terms of pensions and direct debits and so on. It’s in these cases where the limits of Fintechs begin to show.
Horses for courses
Ultimately, your choice of bank account will depend on your unique needs as a business. If you hope to grow and develop the company by perhaps expanding overseas or employing more people, those needs will change over time. But getting it right at the outset can save a lot of headaches further down the line.
“It’s important that businesses are not seduced by the offer of a low exchange rate and not use that as the key criteria for selecting a banking provider,” says Glenda. “That’s because, as their business hopefully grows, then they will need a broader range of services that a fintech might not be able to offer.”
“It’s important for people to realise that not all bank accounts are equal,” Glenda says. “Exchange rates are just one aspect that you need to think about, but there are hidden, issues and questions that you may not realise, unknown unknowns if you like.
We have seen clients who have started with a fintech, and proceeded with a high-street, or a private bank for various operational reasons.
So, the key thing here is to work with an adviser who actually knows how this works.”