UK Neobanks Try Business Rewards Accounts to Win Over Small Businesses

From high fees to complex applications and an impersonal service, the business current accounts offered by traditional banks still leave a lot to be desired, said Richard Davies, CEO at Allica Bank, a regulated U.K. neobank which provides savings, lending and payments services for small and medium-sized businesses (SMBs).

This is especially true for established small businesses with 10 to 250 employees, which form a vital part of the British economy but have long been overlooked by incumbent banks, some of which don’t even have a mobile app, Davies told PYMNTS in an interview.

It’s a gap that Allica Bank’s business rewards account, designed for small businesses, has been helping to fill since it launched last year. It enables customers to earn 1% cashback on everyday business card spending and a 3% interest on savings per year — the highest savings rate on the market now, Davies said.

And given that small businesses tend to avoid the hassle of switching to a digital bank after several years of doing business with an incumbent, business rewards accounts can turn the tables into neobanks’ favor and accelerate their move from back-up accounts to the coveted position of primary current accounts.

“Our goal is to be a full-service replacement for a NatWest or Barclays, [but] we don’t expect to win the primary account from day one because there’s this view that there’s a lot of hassle around moving primary accounts,” Davies explained. “Our aim is to win a lot of secondary accounts and then use those as building blocks to win primary accounts over time.”

B2B Customer Acquisition and Achieving Profitability

According to Davies, one aspect of small business banking that has been overlooked in the neobank space is the lack of data-driven marketing and building appropriate data techniques and models to optimize business-to-business (B2B) customer acquisition.

“We don’t have a big consumer brand, whereas established banks advertise everywhere on TV and sponsor deals, and so by default, they [have an advantage over us],” he noted, adding that the FinTech SMB challenger bank is working on a data-driven playbook that can help find prospective business clients and convert them into customers over time.

Overall, Allica Bank has grown by leaps and bounds since it launched in 2020, Davies said, reporting what he called a “landmark year of progress” after recording a nearly £800 million surge in small business lending and 500% leap in revenues in 2022. The U.K. neobank also posted its first pretax profit in the second half of last year, joining the exclusive club of profitable FinTechs less than three years after securing a banking license.

Davies partly attributed their success to favorable market conditions and strong operational risk management, which saw the FinTech firm buck the global slowdown in venture capital investment to bag a £100 million cash injection from investors last December.

“For a well-run bank, you should make more money when interest rates are higher, [and although] everyone’s betting rates are going to peak by later this year, they will likely remain favorable for us in terms of profitability,” he said.

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