One of the most common questions I am asked as an accountant is to recommend a bank.

In the aftermath of the financial crash the trouble was that I never heard anything good about any of them.

In fact mostly what I heard was stories of customer service so poor it was almost laughable. 

I remember one client who opened a current account with a High Street bank that shall remain nameless and was only sent a debit card 6 months later after persistent chasing.

And of course they were far to preoccupied with branch closures and their own teetering balance sheets to lend to small start ups or integrate with the new shiny Xero platform that provided such contrasting user experience.

Into this vacuum has appeared a new generation of challenger banks.  In this blog we look at three of the front runners - Metro Bank, Starling and Tide. There are in fact dozens we could have chosen from (see bankingtech.com) but we chose these three because all are in some way geared towards small business and were recently chosen strategically to benefit from the Alternative Remedies Package set up by government to spur innovation in small business banking.

In the meantime the established banks have begun to emerge from the financial quagmire, cherry picking some of their best features, so they are going to need to compete directly with some huge brands.

We will consider features, cash, customer service, tech, security, cost and credit / lending. In short is there a compelling reason to swap to one and if so, which one?

Metro Bank

Metro Bank is the most established of the new banks.

That is partly because it was first to launch by some margin but also because it is the only one on the list who has built local branches into its business model.

There are not many branches outside of the South East and if you need to deal with cheques or cash there is a problem. Unlike most other banks there is no relationship with the Post Office to take deposits.

Customer service gets mixed reviews. Clearly it is quite branch orientated which may ultimately prove a mistake. With so much done online the focus on bricks and mortar feels out of step with the direction of travel for how most people want to interact with their bank. However there is also telephone support.

This infrastructure comes at a cost: £5/month charge for anyone with a balance under £5,000 and 30p per transaction if the number of transactions is greater than 50 per month. I suspect this is a stumbling block for many potential customers.

In terms of tech there is a Xero Direct Feed and mobile app with spending insights but if you love your tech you probably don't love the user interface. The feel is bright rather than beautiful.

The bank is covered by Financial Services Compensation Scheme for funds up to £85,000 in event of a banking collapse.

They offer a comprehensive set of lending facilities including business credit card, overdraft and business loans.

It can also offer Enterprise Finance Guarantee (government backed security) and so perhaps lending is Metro Bank's strongest card at present with a comprehensive range and a track record of lending that none of the others can offer.

Starling

From the get go, the user experience in Starling is completely different to Metro Bank. For anyone immersed in tech design, the feel and interaction is up there with the best.

Some will be surprised to discover that there is no online banking via browser, the platform is built around the mobile app.

As you would therefore expect, customer service is also all via the app and email and generally well received in online forums but there is no telephone support and definitely no branches.

Costs are hard to find, even for the business account.  There is no monthly fee and no transaction fees for debit card and bank transfers.  The only transaction fees we could find were for cash deposits which are done through the Post Office (£3 per deposit for amounts under £1,000 and 0.3% for amounts above).

The app fully integrates with Xero and interestingly the bank offers a developers API. Although this API is in its infancy this could be significant. As we have discovered with Xero the app marketplace can become an important part of the attraction.

Unlike some other challengers such as Revolut that are built around a mobile app though, Starling is in fact a bank rather than a banking facility. This is important because only banks are covered by the aforementioned Financial Services Compensation Scheme.

Where the bank definitely suffers in comparison is with lending.  There is no credit card and whilst there is an overdraft, there are no business loans.  That said the bank is in its infancy and I would expect lending to follow.

For others the problem with Starling could be that it is limited to sole traders and limited companies where there is only one person with significant control.

Tide

Like Starling most of Tide's functionality is found on it's mobile app.  Design is not as slick but unlike Starling, there is access via a browser.

Where Tide has made most effort is in integrations and functionality beyond a bank account / banking app. The app itself has bookkeeping and invoicing functionality built in. There is a developers API and integration with more bookkeeping and third party applications than either of the other two.

It also has a nice feature which allows employees to have their own cards with spending limits.

Customer service is mostly via the mobile app but telephone support is offered, albeit in response to email request.

Once again there are no monthly charges or card transaction charges but bank transfers cost 20p. There are also fees for cash withdrawals and deposits which can be made via the Post Office.

Lending is even more limited than Starling. There is no credit card, overdraft or business lending. The bank has attempted to solve this problem by integrating with IWOCA, though it must be said that IWOCA is available to businesses outside of the Tide system as well.

Conclusion

What the three banks have in common, that really sets them apart from their more established competitors is their focus on the customer.  In their own way each one is trying to do something different and give something to the consumer they feel the traditional banks can't manage. That in itself is a powerful reason to move to one.

Of course each has slightly different strengths and weaknesses.  Metro Bank, to its credit is about its local community, the branch and a face to face relationship with its account holders. Looking under Starling's very beautiful wrapper, there is a stand for a better, more ethical bank, treating the customer well and a focus on technology as a way to achieve this. At Tide the feel is more for functional and practical solutions to help small business owners.

If pressed to choose one, which we probably will do in the near future, I am most persuaded by Starling. The vision and proposition seems most complete and it appears strategically best placed for the future.