New firms are increasingly drawn to digital banks and tools due to their cost efficiency, convenience, and alignment with modern business practices. Digital banking platforms offer user-friendly, flexible, and scalable solutions that integrate seamlessly with other digital systems, crucial for start-ups operating in dynamic environments.
They provide quick transaction processing, essential for maintaining healthy cash flow, along with innovative features like real-time analytics and enhanced security measures. Additionally, the reduced paperwork and tech-savvy nature of these platforms cater to the expectations of a digital-first customer base and fit naturally into the broader digital ecosystem in which many new businesses operate. This synergy between digital banking and the needs of new, often tech-oriented firms makes these tools not just attractive but essential for their growth and efficient management.
New firms and the new challenger banks
Challenger banks (or neo-banks) are modern retail banks which are competing directly with longer-established banks in the UK usually by offering financial technology with app and online-based branchless banks being more focused on the customer. Following regulatory changes to the UK banking sector after the 2008 financial crisis, it became easier for new entrants to challenge the domination of the established banks in the UK. This led to the launch of several new banks which emphasised greater customer interactions utilising mobile apps, real-time payment notifications and competitive pricing.
Since their introduction, challenger banks have captured the imagination of SMEs in the UK and the latest British Business Bank Small Business Finance Markets report showed that in 2022, £35.5 billion of bank lending to businesses came from challenger banks in 2022. This gave challenger banks a 55% share of the market, overtaking lending by the major banks.
The Ambitious UK Start-Ups Report, sponsored by Starling Bank, draws from data gathered from 1,219 applicants for the 2023 UK StartUp Awards which recognise the best new firms across the UK. It shows that 67% of new businesses have accounts with challenger banks .
There are no gender differences in terms of banking preferences although younger start-ups based in new industries (i.e. in cutting-edge and innovative areas such as agritech, AI, fintech, high-value manufacturing, life sciences, medtech, mobile applications or platforms, and new product development) and located in the more prosperous UK regions are more likely to use their services. Therefore, the UK landscape is witnessing a dramatic shift in start-ups’ banking preferences. Innovative platforms, personalised services, and a user-focused approach seem to be the key attributes that have endeared these start-ups to challenger banks.
Starling Bank turns out to be the most favoured banking partner for new businesses with 31% share of the market. Five other challenger banks or fintech firms – Tide, Revolut, Monzo, Wise, and Metro Bank – are also in the top ten of financial institutions utilised by new firms.
Although traditional banks have served businesses for decades, the increased preference for challenger banks indicates a shift towards more digital, agile, and user-centric banking solutions, potentially pushing the established players towards much-needed innovation and agility. In terms of traditional funders, the leading high street bank for start-ups in this survey is NatWest which has a 10% market share, followed by Barclays (9%), HSBC (5%) and Lloyds (4%).
These findings unlock an interesting narrative about the ever-evolving preferences of entrepreneurs who are enthusiastic about leveraging modern digital-centric banking experiences. The rise of challenger banks is also a testament to the power of innovation and the potential of technology in reshaping industry landscapes, much like start-ups themselves. The banking preferences of these potential high-growth businesses are painting a fascinating portrait of the future of the UK enterprise ecosystem, where innovation, flexibility and customer-centricity reign supreme.
Digital platforms propelling entrepreneurial success
Founders of start-up businesses are also using a range of digital platforms for global reach, cost-effectiveness, e-commerce, data analytics, customer engagement, flexibility, collaboration, automation, brand building, innovation, and accessibility. These platforms – including LinkedIn, Instagram, Facebook and X (formerly Twitter) – offer numerous advantages including expanded market reach, improved efficiency, enhanced customer relationships, and opportunities for growth and scalability in the digital era.
The most popular digital platform used by start-up founders is LinkedIn with 89% of founders utilising it to connect, collaborate, and grow their business. Not only is it used for professional networking, business development and recruitment but increasingly, as founders raise their own profile, for personal branding, thought leadership, and community engagement. The second most popular platform is Instagram with 72% of startups using it for connecting with potential customers. As a visual platform, it allows start-ups to showcase their products, services, and brand identity through photos and videos to build and promote their brand through consistent creative content. Also, with over a billion monthly active users, Instagram offers entrepreneurs access to potential customers globally and in specific niches. Facebook is used by 64% of start-up founders for broad audience reach, targeted advertising, and customer reviews. It serves as a powerful platform to connect with a target audience, build brand credibility, and grow businesses through networking and e-commerce opportunities.
New firms are increasingly drawn to digital banks and tools due to their cost efficiency, convenience, and alignment with modern business practices. Digital banking platforms offer user-friendly, flexible, and scalable solutions that integrate seamlessly with other digital systems, crucial for start-ups operating in dynamic environments. They provide quick transaction processing, essential for maintaining healthy cash flow, along with innovative features like real-time analytics and enhanced security measures. Additionally, the reduced paperwork and tech-savvy nature of these platforms cater to the expectations of a digital-first customer base and fit naturally into the broader digital ecosystem in which many new businesses operate. This synergy between digital banking and the needs of new, often tech-oriented firms makes these tools not just attractive but essential for their growth and efficient management.
In conclusion, the changing dynamics of the UK business landscape clearly illustrate the growing inclination of new firms towards digital banking and digital platforms. Challenger banks, with their customer-centric models, have gained considerable traction, capturing a significant market share and becoming the preferred choice for many start-ups. This shift is driven by the digital, agile, and user-focused services these banks offer, aligning perfectly with the needs of modern, tech-savvy businesses. The findings from the Ambitious UK Start-Ups Report underscore this trend, highlighting the dominant role of challenger banks like Starling Bank in the start-up ecosystem. Furthermore, the extensive use of digital platforms such as LinkedIn, Instagram, and Facebook by start-up founders reflects a broader move towards digital-centric operations. These platforms facilitate global reach, efficient customer engagement, and brand building, essential for the growth and scalability of new businesses. Together, these trends paint a picture of an evolving enterprise ecosystem in the UK, one where innovation, flexibility, and customer-centricity are key, and where digital banking and digital platforms are not just tools but essential drivers of entrepreneurial success.
