Airwallex

It’s been almost 15 years since the first online-only challenger banks burst onto the scene, promising to change the way we manage our money. Since then, a slew of FinTechs – from multi-currency payment platforms to accounting software – have reshaped our perception of modern business finance.

With online banking and WealthTech services making it easier than ever to switch providers, savvy CFOs, entrepreneurs and sole traders are shopping around for a better deal. They are looking for improvements both in fees, and for broader benefits such as customer service, platform capabilities and ethical policies.

This has resulted in an interesting shift across the industry. Traditional institutions are scrambling to up their game, buying up tech solutions and introducing their own environmental policies in an effort to contend with their more agile competitors and offer a more client-focused experience.

In this article, I’ll look at some of the most significant changes we’ve seen in recent years, and the implications for businesses and financial institutions going forward.

Ethical finance

Can a company call itself ethical if its bank invests heavily in fossil fuels? That’s a question you can expect to hear a lot over the coming years, especially as more businesses push to become B Corps.

In a smart PR move, Starling Bank has positioned itself as an ethical choice for businesses and consumers. But whilst Starling’s policies extend to paying workers a living wage and not investing in arms or tobacco, their stance on the environment is murkier. Starling claims that being online-only reduces its carbon footprint, but is that enough to convince modern businesses (and their customers) that the bank is truly sustainable?

Triodos Bank takes things ten steps further by limiting its investments to organisations that focus on the environment, culture and people. Triodos is also committed to transparency, and lists every business they lend to on their website.

In response to mounting pressure, high street banks have released their own sustainability statements, promising to ‘finance a greener future’. But discerning customers will note that the Big 4 consistently score near the bottom on ethical finance ratings because they invest trillions in fossil fuels.

What challenger banks and FinTechs bring to the table when it comes to ethical finance is consumer choice. With no excuse for apathy, businesses that brand themselves as ethical must think carefully about which financial institutions they want to align themselves with. In turn, banks must consider how they can improve their standards beyond surface-level PR campaigns – particularly as the environmental crisis deepens and sustainable finance develops from a fringe topic to headline news.

Global expansion

According to a survey by Airwallex, 77% of UK businesses intend to expand their international presence this year. Global expansion used to be a costly venture, with banks charging high transaction fees and FX rates for cross-border transfers and payment acceptance. Businesses could reduce these fees by opening multiple foreign currency bank accounts, but this created a disjointed banking experience and racked up additional account management costs.

Payment solutions like Airwallex solve this problem by allowing businesses to collect, hold and send multiple currencies from a single account and by offering a more competitive FX rate compared to traditional business bank accounts. For ecommerce businesses, this is a game-changer. Using a multi-currency solution, businesses can collect payments in local currencies around the world without excessive fees. In short, ‘going global’ is no longer an option but a no-brainer, particularly for ecommerce companies. This is why the cross-border ecommerce market is set to grow by an annual CGAR of 27% over the next four years, and FBA aggregators (companies that buy up small Amazon sellers and take them global) have successfully raised billions of dollars from investors.

Technology

The finance industry has a reputation for being tech-phobic – banks still rely on solutions like BACs and SWIFT that haven’t changed much since the 1970s. But times are changing, and FinTech is going through a renaissance which sees no sign of abating.

Modern payment solutions use local banking routes to transfer money across borders faster and more cheaply than SWIFT, accountants use software to automate bookkeeping and forecasting, and everyday investors are moving away from traditional stockbrokers onto WealthTech apps like Plum and Stake. That’s before you consider the impact of blockchain and crypto. Ultimately, tech is making life significantly easier for businesses. From automating manual tasks such as expense management and payroll, to enjoying fast access to forecasting and risk data.

The trouble is that traditional financial institutions are not designed for rapid change. The Silicon Valley motto – ‘move fast and break things’ – is a far cry from the culture in most banks, and this lack of agility has made it difficult for them to compete with smaller, tech-focused companies.

So, what we’re seeing now is larger financial institutions buying up tech companies and investing in white label solutions in order to deliver a better digital service for clients. In June 2021, JP Morgan acquired the online investment platform Nutmeg ahead of the UK launch of its digital bank; Lloyds recently partnered with cash management platform Satago to ‘reinvent invoice financing for UK SMEs’; and Goldman Sachs is reportedly making moves to buy Nucleus.

Looking to the future

FinTechs and challenger banks have injected some much needed competition into the business finance market, and drawn attention to the issues that matter to modern businesses – customer service, platform usability, tech innovation, low fees and high ethical standards. With so much choice available, businesses are now thinking carefully about where they put their money, not just how they make it. And as expectations rise, the financial services industry has been forced to become more consumer-focused. Traditional providers can no longer afford to be complacent, and those that fail to adapt will continue to lose customers to slicker and cheaper competitors.