A new breed of challenger bank looks to startups and sole traders with its smart, low-cost, all-mobile business account.
When the dust finally settled on 2008’s financial crisis, the Bank of England re-jigged its regulatory process. In doing so it opened the door to a new kind of bank.
Looking to introduce more competition in an industry seen as opaque and out-of-touch by customers, BoE designed a simplified two-step process with lower capital requirements for setting up new banks.
Challenger banks like Starling Bank and Monzo were the result. They offer an agile way of managing money with an intuitive, app-driven approach. It eliminates the need for branches and the bureaucracy of traditional banking.
Customers have been flocking to give these new mobile-only banks a go, impressed by their simplicity, low-to-no fees, reputation for responsive service, and competitive exchange rates.
Previously we’ve reviewed Coconut’s business service aimed at freelancers and SMEs, and N26 which is also turning its attention to business users.
Today we look at Starling Bank and consider how its business accounts could benefit you.
Starling Business: Pros and Cons
Here’s a snapshot of Starling’s positives and negatives for business users. All financial products have some degree of good and bad. Weigh up the details and consider the costs and benefits most relevant to your sector and business size.
Like Monzo and other mobile-only banks, Starling is easy and convenient to use.
New accounts can be up and running in about 10 minutes.
No joining or monthly fees.
Contactless debit card delivered within a week.
Spending insights feature will help you scrutinise spending by category.
No spending fees abroad and Mastercard exchange rate.
24/7 customer service.
Integration with popular small business accounting software.
Cash is welcome. Users can pay in at over 11,000 Post Office branches around the country
Starling’s business account is regulated by the PRA and FCA, and all eligible deposits are protected by the FSCS up to £85,000.
The range of business accounts is limited – just two
There is no business credit card, though an overdraft facility is available
At 15 per cent EAR, loan and overdraft interest is rather high
Any in-person deposits or withdrawals at the Post Office incur a fee, starting at £3 per deposit and £0.50 per withdrawal.
If the app malfunctions or you lose your mobile connection, transactions may need to be repeated.
Who are Starling Bank?
Traditional banking is being rapidly re-defined by mobile-only banks. They deliver services quickly and conveniently – challenging their high street rivals with low fees, fairer exchange rates, and a relentless focus on customer service.
Along with Monzo and Revolut, Starling Bank is seen as one of the movement’s leaders.
It launched the UK’s first mobile-only current account in 2017, adding business bank accounts in Q4 2018.
Founder and CEO Anna Boden’s background in banking and technology adds credibility to the offer. She spent years in senior roles with high street brands like Lloyds and Allied Irish Bank. She was also part of the industry initiative that created the UK’s CHAPS system for real-time payments.
Starling’s approach is to provide the core services customers need, while gambling that there are things they’re willing to give up – like physical bank branches.
To compensate for the loss of face-to-face contact with banking staff they offer:
MasterCard debit card as standard
24/7 in-app customer service
And free money management tools.
How does Starling for Business work?
Starling says its aim is to make business banking straightforward, simple and quick.
The business account seems to hit all three marks. It only takes a matter of minutes to create an account. Banking becomes a series of taps and swipes. Tracking and categorisation of receipts and invoices is automatic.
The application process takes longer for a business account – circa ten minutes. But compared to the paperwork and in-person appointment process high street banks still use, it’s a major improvement.
To create a business account users download the app, enter their personal details, and provide information about the business. Starling will then verify identity by having the applicant sending a video and ID documents. Then it’s a matter of waiting for the credit check to be confirmed.
Of course it’s possible the bank may have extra queries at this stage. That’s rare, but still possible. Signup may not be as fuss-free as obtaining a starling personal account.
Business accounts are currently available to individual owners of limited companies, and sole traders. Clearly, the focus is on small businesses and solopreneurs out of the gate.
Having a bank in their pocket means they can access their account whilst on the move. The app sends balance updates and instant payment notifications in real-time to help keep track of day-to-day expenditures.
What are the Starling Business key features?
The business account offers many of the same advantages as Starling’s personal current account. Users will receive payment alerts and the apps will collect and categorise all transactions for a real-time MTD spending report.
Unlike traditional business accounts, there is no monthly account service fee, or a per-transaction charge for bank machine withdrawals. Starling also has its own app marketplace (like Apple’s app store, but smaller) to extend its functionality.
Starling also integrates the account with popular accountancy software like FreeAgent and Xero. The company is adding new apps to its marketplace every week.
Users with both a personal and business account can switch between them in the app.
Both Starling’s business and current accounts are part of the Current Account Switching Service. The process is automated and takes roughly seven days – meaning direct debits are automatically transferred.
If you’ve been paid by cheque or in cash, business users can make deposits and withdrawals in person at more than 11,500 Post Office branches around the country.
But do note:
Depositing up to £1,000 incurs a fee of £3, while any amount in excess of that is charged 0.3%.
ATM withdrawals are free but there is a 50p charge to withdraw money over the counter at the Post Office.
What are the fees?
When used in their native mobile format, all Starling Bank accounts are zero-fee, even when travelling abroad. If you make a withdrawal while travelling you will obviously have to pay the exchange rate. MasterCard sets it and Starling doesn’t add anything on top. Mastercard has a currency converter tool that calculates the daily rate.
Besides the in-branch charges mentioned above, for basic banking via the app the only fee is on Starling’s overdraft facility, with an EAR of 15%.
Users accrue interest each day and have it charged to their account monthly (all visible in the app). If overdraft fees are less than 10p at the end of any calendar month, Starling will waive them.
All challenger banks have to overcome a major hurdle if they’re going to win and keep customers – securing trust. They are all under pressure to deliver a bulletproof and reliable service.
With fellow mobile bank Loot going into administration in May 2019 – not every challenger’s use case is a dead cert for success.
As with any mobile-only bank, some of the service quality depends on bandwidth and the quality of your network connection. Banking on a train or in one of the UK’s many mobile broadband dead zones could be difficult. There is a risk of losing transactions that will need to be repeated later.
There is no Starling Bank branch to visit for assistance, no desktop site you could use as an alternative.
It’s annoying if Instagram locks up while you’re sharing a post. There’s much more at stake if your banking app drops when you’re going through a tunnel.
If the app itself is faulty, you may need to reinstall and re-authenticate. There is no Starling Bank branch to visit for assistance, no desktop site you could use as an alternative.
Business users do pay a fee for withdrawals and deposits made face-to-face at a Post Office branch.
There is no Starling Bank business credit card, though businesses can apply for an overdraft of up to £10,000. At 15 per cent, however, Starling’s business overdraft EAR is not particularly generous.
When asked by YouGov back in 2013 if “bankers are greedy and get paid too much”, 84 per cent of respondents agreed with the statement. It shows just how far public trust in the banking industry had eroded.
So challenger banks jumped into the breach. From a reputational and technological standpoint, they had a clean slate and a clear run.
They weren’t associated with the excesses and risk-taking that aggravated the financial crash, and their technical infrastructure was purpose built – eliminating the complexities of sustaining the glitchy and malfunctioning legacy systems that still bedevil traditional banks.
They also sidestepped the costs of running a physical network of bricks & mortar branches.
Fast forward to 2019 and challenger banks like Starling are strengthening their appeal to digital-savvy customers. Delivering greater transparency with regards to how you spend your money, and how they operate as organisations. They offer a sea change in the way basic banking is done.
Starling Business: What we think
Starling is building business banking service tuned to the expectations of today’s entrepreneurs, freelancers, and digital natives.
As a startup itself, the bank has chosen to focus on a segment where it has built-in legitimacy: entrepreneur-run businesses that run lean and need convenient & inexpensive banking and accounting services.
As the first-out-of-the-gate with its business account, Starling has seen an opportunity to meet the needs of an under-served market.
In the early stages of running a business, money can be tight. Creating a dedicated business account with a high street bank would normally mean extra bank fees and expenses. Standard business accounts usually charge per transaction on top of a monthly account fee.
As the first-out-of-the-gate with its business account, Starling has seen an opportunity to meet the needs of an under-served market. It’s carving out a market space it can build on while beating rivals like Monzo to the punch.
Some may find the idea of an app-only bank a bit off-putting. Most of us have grown up with the queues, waiting times, paperwork and process high street banks require. Losing face-to-face contact in the move to a new bank requires a small leap of faith.
Despite that, we would advise small business owners and solopreneurs to give Starling a try. Perhaps begin with a personal account, test it for a month, and then decide if you want to jump in with both feet.
Starling Bank currently rates a ‘Great’ on Trustpilot – 8.8 out of 10 based on more than 3,700 reviews.