Moving with the financial times: how challenger banks and fintech are great for business

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So-called challenger banks have been disrupting the financial sector’s perennial performers over the last five years. Companies such as Monzo and Starling have found ways to use the convenience of smartphone technology and fintech to create simple, secure and accessible services. How have they done this? Well, everything starts with a focus on three things: customers, convenience and compliance.

Starling et al aren’t as concerned with institutional clients like legacy banks, Lloyds and Barclays. Challenger banks have also ditched traditional access points, such as retail stores, in favour of online and mobile apps for greater convenience. Finally, these new-age banks ensure they meet strict regulatory requirements and no more. In other words, they do as much as is required to keep customers safe and within the law. Beyond that, they focus on creating a slick platform through which people can easily handle their finances.

On top of these three core tenets of modern banking are a variety of customer-friendly features. For example, customers can get help and support via online chatbots. If the automated system can’t solve the problem, the person is connected to someone that can. This is a far more efficient and convenient way to get help than calling up and waiting in a queue of callers. Challenger banks also offer referral incentives and cashback for spending money via the account.

Digital banks born in a digital age

Banking apps such as Monzo also give customers the ability to create pots. These pots can be used to manage finances, save money and, in some cases, earn interest. Finally, challenger banks don’t have to convert legacy systems to fit the digital age. They were born out of the digital age. Their systems are designed to process transactions using modern technology. Barclays et al have had to convert their systems.

This not only takes time and money, but it’s also inefficient. It’s like the difference between converting an old property and building a new one. It’s easier to do the latter because the builders are starting with a blank canvas. That’s what challenger banks have been able to do. Does that mean they’re better than established banks with longstanding reputations for excellence? Not necessarily. What it does mean, however, is that Monzo et al is in tune with the zeitgeist.

They meet the modern consumer’s needs, which is why a report by Allied Market Research estimates that the challenger banking market will be worth $471 billion by 2027. Not only will this sector grow, but it will also influence other parts of the financial world. In fact, we’re already seeing it with B2B and corporate banking. Today, businesses have more choices than ever when it comes to managing their spending and finances.

Centralised and controlled spending

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For example, instead of making purchases with a corporate credit card and then having to manually record the transactions, there are ways to link the two processes. For example, let’s say a business used a corporate credit card from NatWest for purchases. These purchases would be recorded by NatWest. However, the accounts team would have to import the data into whatever software or spreadsheet they were using to track the company’s finances. Corporate credit cards from financial services companies like Moss turn this two-step process into a single-step process.

Spending via a Moss corporate credit card is tracked and entered into the platform’s accounting system. This removes the need for collecting receipts from external sources to create expense reports. These corporate credit cards also give business owners the ability to set individual spending limits, which means all members of staff can have their own cards. Then, as long as all expenses go through the corporate credit card, everything gets centralised. All of this means that spending is closely monitored, transparent and controlled. In turn, it’s easier to manage the company’s finances.

FinTech has made financial matters more efficient

The ways fintech and modern financial services providers are helping businesses don’t stop there. For example, Transfermate and PayPal make it easy to send money overseas in a cost-effective way. In fact, if you decide to embrace cryptocurrencies such as Bitcoin and Ethereum, it’s possible to send funds in an even more cost-effective way. As well as the ability to send money elsewhere in an efficient way, modern technology is making things safer. Blockchains for Bitcoin et al are extremely safe, as are challenger banks. In addition to these inherent security features, companies can use security software powered by artificial intelligence algorithms.

Products and services from companies such as Darktrace take the process of detecting, preventing and eliminating threats to a new level. From monitoring email communications and cloud storage to a business’s in-house IT system, these products cover every angle with software that actually evolves. Basically, by using smart algorithms, modern security products can learn what common threats are based on a business’s daily actions. Then, by monitoring inbound and outbound communications, the software can make adjustments where necessary to ensure the system is as secure as possible.

Given that protection is paramount at every level, from the accounting software a company uses to sensitive emails containing financial information, it pays to have powerful security software. Thus, what you’re getting here is another situation where technology is helping to make the financial side of a business better. Indeed, when you combine this with corporate credit cards, transparent spending, easier invoicing and the ability to send funds anywhere in the world with ease, banking is easier than ever.

Bank better with modern systems

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Of course, that doesn’t mean there isn’t a place for legacy banks. Barclays et al have huge infrastructures that, in a lot of cases, are still useful. However, in a constantly evolving world, challenger banks are fast becoming the go-to option for a lot of businesses. Whether it’s convenience, the ability to centralise and automate certain processes, or a desire to change, challenger banks are on the rise. For any business looking to move with the times and manage its finances in a better way, these financial institutions, in tandem with modern accounting systems and services, could be the way forward.