Small businesses in the UK keen to adopt digital banking

Published on 20/02/2020 by Sonia Navarrete

Since 2008, following the financial crisis and with the booming of technology, the banking industry has witnessed changes that have meant the entry of new players. Small business banking has also changed since. Until then, traditional banks were the go-to option for all businesses, whether big or small. Trust in banks has decreased since the financial crisis in 2008 and it was this opportunity that the new banks seized to enter the financial market. 

small business banking

Did you know? Traditional banks are those offering physical branches and online whilst digital banks are only available online.

The British Bankers’ Association asked regulators to lower the entry requirements for challengers banks to increase competition in the banking industry, led until then by traditional banks (also called the ‘big four’). 

Did you know? The phrase ‘big four’ refers to the four largest banking groups. In the UK, these are Barclays, HSBC, Lloyds Banking Group and The Royal Bank of Scotland Group.

The birth of digital banks

Following this, a number of new digital banks appeared between 2014 and 2015: Starling Bank, Monzo, and Revolut among others, looked to ‘challenge’ the traditional banking industry. These new banks offered a new way of banking, more agile and all online. These banks offer more flexibility when looking at operations, allowing customers to do day-to-day operations online without the need to go to a physical branch.

Digital banks have made a big impact on the UK financial sector. In the Bank of England’s 2018 report ‘Embracing the promise of fintech’, 74% of UK adults use online banking and the number of visits to bank branches has decreased by 26% from 2012 to 2017.

We wanted to take a closer look and understand how small businesses choose to work with a bank for their primary business account and how this may differ from their private banking choice.

We surveyed more than 600 respondents for this article. Out of these, 72% were self-employed and freelancers, 24% an SME owner and 4% an in-house accountant. 74% of respondents have 1-10 employees.

Highlights of the study:

  • 57% use a mobile app to access their primary business account
  • 82% of businesses think is important for a bank to have a physical branch
  • 90% would consider switching to a digital bank
  • 77% use a traditional bank for primary business

The presence of a bank branch is still important 

When we asked respondents about their view on the importance of having a physical bank branch that they can go to, 82% said that it’s important to have a physical bank branch to go to.

A third of respondents stated that when looking for financial advice they prefer to visit a branch. In addition, 24% would prefer to have a face to face interaction when looking for business loans and 19% when looking to open a new business account.

Trust is the most important factor when deciding on a bank

68% of respondents said they would choose a bank they trust over one they don’t have much information on. If you think about it, trust is key when deciding where to put your money and, as a small business, it can be vital. Trust can be gained if they have been with a bank for many years, or if they have a personal account and are already familiar with the business offering of the bank.

Despite our research showing that online reviews are more trusted than experts review, surprisingly, online reviews (10%) and recommendations (21%) were not strong factors for respondents. We found that online reviews are trusted more than expert reviews by users when looking to buy a product. 62% of respondents stated trusting more an online review than an expert or a friend’s opinion.

This seems to be different when deciding on a bank. The reason could be that the financial industry is tougher when it comes to building trust, and for digital banks especially as they have only been in the industry for a few years.

These banks are offering lower interest rates and more flexibility in operations (for example is not necessary to go to a physical branch). However, when it comes to building the trust of small and medium businesses, consumers choose traditional banks.

Despite low adoption, small businesses are willing to adopt digital banking

When asked about what bank they use, 23% of respondents use digital banks. However, respondents praise some of their features such as ease of use (34%), flexibility (27%) or cost (15%). 

90% are willing to change to a digital bank in the future. Respondents said that some of them had started with a digital bank as a personal user and decided to move to a business one. Accessibility is another key factor for digital banks to win customers. 57% of respondents access their business accounts via mobile app.

It’s important to note that banking, like many other industries that do trading with the EU may be affected by Brexit. Most banks have been applying for licenses for the last few years to open an office in Europe and continue to provide service to those customers that have international operations.

infographic small business banking digital versus traditional banking in the uk

Interested in learning more? Take a look at our Online Banking Software and Banking Software listings to see how Capterra can help.


To collect the data for this report, we conducted an online survey. The answers come from a sample of the target market UK.  Over 600 participants qualified to participate in the survey through screening questions out in January and February 2020. Qualified participants are employed (full-time, part-time or self-employed) and work in a small to medium-sized enterprise (1-250 employees). Respondents were SME owners, self-employed and in-house accountants and either directly responsible for the finance or related to it in a way in their daily activity of the company.


This article may refer to products, programs or services that are not available in your country, or that may be restricted under the laws or regulations of your country. We suggest that you consult the software provider directly for information regarding product availability and compliance with local laws.


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