For centuries, physical banking has been an integral part of the UK’s financial fabric, with banks holding prime positions on the British high street.
Yet, a wave of change has been rippling through the industry since 2015.
With over 5,233 branch closures in that time, as reported by consumer group Which?, businesses have had to reconsider their traditional banking relationships.
The Rise of Digital-Only Business Banking Providers
In this shifting landscape, ‘faceless providers’ have risen to prominence, offering exclusively online banking services.
According to the latest 2022 survey by NerdWallet, these providers have made significant strides in the realm of business banking.
The survey reveals a discernible lean towards digital banking among business decision-makers.
Understanding the Appeal of Digital-Only Banking
The switch to digital banking can largely be attributed to the pandemic-induced acceleration of digitalisation.
Necessity paved the way for familiarity, resulting in 47% of businesses transitioning to digital banking in the last 12 months, after experimenting with it in their personal lives.
Emerging onto the business banking scene, digital-only providers built user-centric platforms from the ground up.
This technological advantage has resonated with customers. 65% of switchers favoured the superior products of online banks, while 63% preferred their more appropriate pricing structure.
The Banking Services Revolution
Traditional banking services have been revolutionised. Depositing cheques is no longer an errand; it’s as simple as taking a picture on a mobile banking app.
And it’s not just about banking convenience – support services have evolved, too.
With online providers offering 24/7 support and same-day account setup, it’s little wonder businesses are being enticed into the digital banking fold.
Diversifying Financial Products: Beyond Just Everyday Banking
Digital banking is not confined to daily transactions. The versatility of financial products available is inducing a paradigm shift among UK businesses.
In the past year alone, over half of the business decision-makers (52%) have availed financial products, such as loans and credit cards, from digital-only providers.
Generation Divide in Embracing Digital-Only Banking
Interestingly, a generational chasm has emerged. Younger business owners (Gen Z) are more inclined towards digital banking, with 84% switching to digital-only banks in the past year.
Moreover, the older generation (65 years and above) mirrored a similar trend, with 60% open to digital banking.
However, millennials and early Gen Xers exhibited a resistance to this change, with 57% of 25- to 34-year-olds and 51% of 35- to 44-year-olds preferring traditional banking with physical branches.
Trust and Reticence in the Digital Banking Age
Trust is paramount in banking, and surprisingly, 53% of respondents placed equal trust in traditional and online banks.
While the absence of physical branches did not appear to affect trust, a significant number (43%) were still reluctant to move their business finances online-only.
The Regulatory Framework Around Digital-Only Providers
Regardless of the format, all banks operate under the regulatory oversight of the Financial Conduct Authority (FCA).
Furthermore, banks, building societies, and credit unions offer protection through the Financial Services Compensation Scheme (FSCS).
However, it is important to note that e-money providers, while they follow strict safeguarding procedures, do not always offer FSCS protection.
Conclusion: Future of Faceless Banking
With over half of businesses utilising digital banking services in the past year, the adoption of faceless banking seems promising.
Yet, businesses still lag behind individuals in fully embracing digital banking.
As our society continues to digitise and physical bank branches dwindle, the future may see a greater lean towards digital-only banking to meet business finance needs.
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