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Top UK Lenders Launch SMB Branch Joint Venture

The U.K.’s efforts to inject competition in the small business banking and financial services sector have culminated in a range of initiatives, from the bank referral scheme to strengthen the position of alternative lenders in the market, to the RBS fund that sees rivals and industry newcomers securing financing to improve their services.

The competitive landscape has shed light on rising demand among small businesses for digital services. Alternative lenders position themselves as faster, technologically-savvy options for small to medium-size businesses (SMBs) that seek capital, while many of the FinServ providers in the running for RBS funds operate as digital-first companies ready to meet small firms’ need for automation, online platforms and cutting-edge banking services.

But there is another trend disrupting small business banking in the U.K., and in many ways it is in stark contrast to the digital rivalry brewing.

On Monday (March 11), reports in Reuters revealed three of the nation’s largest traditional banks — including RBS — are now collaborating on a new project aimed at linking small business customers to physical “hubs.” The joint venture, which also involves Barclays and Lloyds, is an industry effort to address backlash resulting from the FIs’ decision to reduce the number of physical bank branches, which analysts and regulators say adversely impacts the small business community.

It also sheds light on the continued need for cooperation and traditional financial services for the SMB community at a time when the industry is largely focused on competition and digital offerings.

Business Banking Hubs

According to Reuters, the financial institutions plan to open what they call “business banking hubs” that will operate with extended hours, yet offer stripped-down services with a focus on cash exchange and cash payments.

The publication noted that the project aims to support small businesses that have been adversely affected by bank branch closures in recent decades. But the FIs’ proposed six pilot hubs won’t come close to the thousands of branches that have closed, dropping to about 7,500 in 2018 from 20,500 in 1988, reports said, citing data from consumer watchdog Which? published late last year.

Still, the move was applauded by small business supporters.

“These business banking hubs mark a welcome step forward, and hopefully are a sign of things to come,” said Federation of Small Business National Chairman Mike Cherry in a statement.

“We have listened to what our business customers really want from our cash services,” said Alison Rose, deputy chief executive of NatWest, RBS’s largest unit. “We are creating an infrastructure that allows small business owners and entrepreneurs to do what they do best — run their business.”

The initiative also reflects the continued importance of traditional, in-person services for the small business community, which has recently been bombarded with new service providers operating on a digital-first strategy to target digitally-savvy entrepreneurs.

Boosting Digital Services, Bank Competition

The banks’ announcement of the business hub pilots coincides with the U.K. government’s ongoing efforts to inject competition in the small business banking space, most recently through the allocation of RBS funds to industry rivals.

While the largest portion of the first awards went to traditional player Metro Bank, the initial winners, announced last month, also included Starling Bank and Tide Bank (thanks to the latter’s partnership with ClearBank), both vowing to inject the SMB banking space with digital services.

The announcement also came the same day Tide announced plans to raise an additional $78.7 million from the RBS fund to continue strengthening its market share. The company is a digital-only bank, providing a mobile app to small business owners.

Tide Chief Executive Oliver Prill said the firm wants to capture 8 percent of the small business market by 2023 and challenge traditional banks’ industry dominance.

“We want to create a genuine scale challenger to the oligopoly that has dominated and failed SMEs for too long,” Prill said, according to PA Money News reports.

Starling Bank, too, is a digital-only challenger, and secured $130.7 million from the RBS fund.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.