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Online Banking vs High Street

Online Banking or High Street: Which is Best?

Editorial Team

You will most likely come across online banks as they are becoming increasingly popular with small business owners. More and more people are opening accounts with online banks because of their many benefits. You may however be wondering how an online business bank works, how it differs from traditional high street banks, and what the pros and cons of online banking are.

Read on to learn about the differences between online banking and high street banks in the UK and the advantages and disadvantages of each.

What is an online bank or online bank account?

An online bank usually refers to a banking experience that is either completely online or through an app. For many businesses, having to go in branch for their application or support is now optional (including the queues). Online banks are often referred to as “challenger banks” as they challenge the traditional high street approach on aspects like ease of use, features and cost. Many commonly known online bank account providers include Monzo, Revolut and Starling Bank, which offer access to your bank account using a mobile app. This is also referred to as "mobile banking".

In recent years you may have also heard of digital banks or digital banking which in many ways is the same as online banking. However, this can also refer to the way a bank operates technically. Digital banks often take advantage of Open Banking, which helps them to serve the everyday activities of a bank such as sending and receiving money. This enables startups to focus on building better experiences, more competitive offerings and customers can still benefit from the same level of security and reliability of a high street bank.

How does it differ from a high street bank?

Online banks operate primarily online and the high street banks usually have physical premises or branches for applications and support. This can be useful for businesses who would prefer in-person support. This has been particularly important historically, as people want to know they can speak to someone about their finances.

Whereas an online bank typically has no physical branches, and support is usually through an app, phone or email. Many online banks have focused on providing excellent customer support to build trust with customers, and have made their apps as easy-to-use as possible to provide an attractive alternative to high street banking.

Are online business bank accounts safe?

To ensure that your online business bank account provider is safe, always look for Financial Services Compensation Scheme (FSCS) protection. In case a bank fails, the FSCS insures deposits which include small businesses, limited companies, and charities that are using online business bank accounts for up to £85,000. You should be aware that not all options, particularly e-money providers, are in the FSCS scheme although there is safe guarding measures in place. In addition to this, research whether your chosen bank is approved by the Financial Conduct Authority (FCA) as this will ensure their compliance with UK-specific regulation and standards.

Practicing basic online security is also essential, so take care to use secure passwords, avoid using unprotected public Wi-Fi networks, log out when sharing a computer, and keep your anti-virus software up-to-date.

What does an online business bank account offer?

This really depends on the bank, but some examples include:

  • Customisable invoices
  • Easily set up direct debits
  • Ability to open sub-accounts
  • Cheap international transfers
  • Accounts in multiple currencies
  • Grant access to an accountant
  • Simple receipt capture for expenses
  • Mobile cheque deposits
  • Accounting software integrations

Do online business bank providers charge a fee?

This depends on the bank and can vary significantly. There are online banks that provide free business bank accounts and there are some that charge a set monthly fee, and others calculate their fee based on the number of transactions made in a month.

What are the advantages of opening an online business bank account?

  • Usually faster to open than a high street bank account
  • New features offered not found with many traditional banks
  • Some charge no-fee or a low fee
  • Many offer 24/7 customer support via an app
  • Expense and general admin can be automated
  • Option to quickly capture receipts and VAT

What are the disadvantages?

  • Limited range of services offered, i.e. you may not get a business loan or credit card with the same bank
  • No physical presence for support can be off-putting where money is concerned
  • If your device is lost, stolen, or broken you may find it difficult to access your account
  • New businesses, particularly startups, can change and this may impact your services

How do I open an online business bank account?

Usually, the individual online bank providers will walk you through the process of opening an account with them. Most of the time you will need to prove that you are a registered business and you will need to prove your identity using an online verification process. Some banks will also require a UK address to dispatch your debit card.

Although there are many things that high street banks have that online banks don’t, such as a long-standing reputation, it is clear that challenger banks are here to stay and their presence means a more competitive market, and better deals, for small businesses across the UK.