The likes of Monzo and Starling Bank have soaked up plenty of attention in the fintech space, but there’s a new player that appears to be taking the business banking sector by storm.
Tide, which is not technically a bank, recently revealed growth of 10 per cent in January as it gained more than 5,000 new business account members – equivalent to capturing 0.1 per cent of the UK market.
The firm now has 60,000 customers and is rapidly approaching the scale of traditional challengers such as TSB and the Co-op which boast 100,000 and 90,000 business current accounts respectively.
Tide will soon be operating under a banking licence, it says – presently, it has an e-money licence.
Tide is a purely digital banking app which claims to allow customers to open an account in less than five minutes using their mobile phones
According to the Department of Business Innovation and Skills, there are a total of 5.7million UK SMEs, which means Tide now has 1.1 per cent of the UK market, after launching operations a little more than two years ago.
Now the digital challenger has set an ambitious target to up its market share to between 10 and 16 per cent, bringing its business current account numbers beyond 600,000.
It would mark staggering growth for a company which only launched in 2015.
It aims to achieve it by securing a slice of the £775million RBS Alternative Remedies Package – a government initiative set up to bolster competition in the business current account market after the state-backed bank scrapped plans to sell off its 300-strong Williams & Glyn branch network.
Non-banking institutions can’t bid for the grant but Tide has found a workaround by striking a partnership with ClearBank, a clearing bank, which has applied for a £120million grant from the package.
Tide would provide the customer facing proposition in the tie-up.
Oliver Prill, Tide’s chief executive, said: ‘Additional funding would mean we can transform the market even more quickly and create a genuine scale alternative to the traditional banks.
‘With the infrastructure and customer proposition in place, we can focus the funding on driving awareness of the Tide brand, overcoming switching friction, and creating extremely powerful reasons for customers not to default to the big four Oligopoly that has served them so poorly.’
Tide raised over $22million (£17million) from venture capitalists and plans to launch another fundraising round later this year.
What’s the RBS Alternative Remedies Package?
The RBS Alternative Remedies Package is a result of the Government bailing out the bank during the 2008 financial crisis.
One of the conditions of the support was RBS had to reduce its share of the small and medium enterprise banking market.
It is comprised of two funds: the Capability and Innovation Fund and the Incentivised Switching Scheme. Both are managed by Banking Competition Remedies.
Challengers banks can pitch for a share of the former to improve their financial products and their capability to compete with RBS.
Meanwhile, the Incentivised Switching Scheme will be used to fund incentives to encourage eligible RBS SME customers to switch to other banks.
Is Tide any good?
Tide is a purely digital banking app which claims to allow customers to open an account in less than five minutes using their mobile phones.
It doesn’t charge a monthly, weekly or annual fee and boasts integrations with accountancy solution firms Xero and FreeAgent.
The app also allows users to automatically tag all income and expenditure with labels of their choice.
Tide customers can also get access to up to £150,000 from online lender Iwoca through the account by answering three questions.
Oliver says a payroll function and the ability for users with multiple Tide accounts for their different businesses to toggle between the accounts are among a wider suite of features that will be making its way onto the app this year.
The company doesn’t have a banking licence and is not covered by the Financial Services Compensation Scheme which protects consumers when financial services firms fail.
But funds held in a Tide account will soon fall under the FSCS safety net once the firm completes its transition to ClearBank’s – which is already a subscriber to the scheme – licence.
For now, account balances are kept in a protected ‘safeguarding’ account – meaning that they can never be loaned out to other customers.
Some may be nervy about the lack of FSCS protection. Tide says its e-money licence prevents funds from being loaned out or invested.
Like rival digital firm Starling Bank (which has a banking licence), Tide doesn’t have any branches but you can open an account through its website or smartphone app.
Users can add funds to their account by transferring cash from another – say their personal bank account – or deposit the money at a Post Office or Paypoint.
The account charges 20p to send and receive cash from a non-Tide account and £1 for cash withdrawals at ATMs. Cash deposits made at a Post Office and a Paypoint are cost £1 and 3 per cent respectively.
In comparison, cash deposits can only be made through a Post Office with Starling’s business current account – and it costs £3 for deposits up to £1,000 and 0.3 per for larger sums.
But there isn’t a charge electronic payments, domestic transfers, or ATM withdrawals.
Oliver Prill, Tide’s chief executive, says the firm will be adding more features, including a payroll function, to the app this year
Starling’s account is also free of a monthly, weekly or annual charge and boast integrations with accountancy solution firms.
But you can only apply for the account if you’re a sole trader or an individual owner of a limited company and have significant control over it.
It is also worth considering traditional high street business account.
Although many levy a monthly charge, they also offer services that digital players can’t provide, like a network of bank branches.
Account holders of Metro Bank’s business current account are appointed a manager as a key point of contact and are able to go into their local Metro Bank branch to discuss their account seven days a week.
The bank doesn’t apply a monthly fee if your account balance stays above £5,000 a day. The fee is £5 for balances below £5,000.
The best business bank account for you will depend entirely on individual factors such as the way you like to bank and the number of invoices you issue and pay.
For a more detailed a read our round-up of some of the different current account in market.
Small Business Essentials