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10-30-2024

The Opportunity of Hidden Business Banking Customers

 

In conversation with Nick Reid

Q: Are banks overlooking a significant opportunity with hidden business customers?

Absolutely. There’s a substantial, often overlooked segment within the business banking market: ‘hidden’ business customers. These are primarily sole traders who prefer to run their business from personal current accounts. With the right BCA proposition, this segment presents an opportunity for banks and small businesses.

 

 

Q: Who exactly are these hidden business customers?

Hidden business customers are predominantly sole traders who remain under the radar of traditional business banking services. Our own data from businesses using our services deployed through our bank clients' channels shows that 40% of sole traders use PCAs for their business. Of course, this technically goes against the terms of use for PCAs. But whilst banks recognise this issue, their challenge lies is how to address it without alienating these customers and losing the relationship and their deposits.

Q: Why is this a problem for banks and businesses? What risks do they face?

From the banks’ perspective, this is problematic because personal accounts are not designed for business use. By extension this is a problem for businesses because banks are not geared up to support them as they might a microbusiness BCA holder, so they potentially miss out on products and services which have the potential to be very beneficial for their business. 

However, some attempts to move these sole traders to business current accounts, which often come with fees, risk customer churn. Sole traders are particularly price-sensitive and may leave their bank to take out a competitor's BCA offering or another PCA, if they don’t see sufficient value in upgrading to a business account. 

Another consideration for banks and businesses is trading history, which is one of the key eligibility criteria for some financial services and products. Will all banks recognise business activity on a PCA as trading activity when assessing a business for a service or product, especially if it is interspersed with the sole trader's non-business related data?

Q: What is the opportunity for banks who get this right?

The opportunity here is big. If our own 40% stat even comes close to being reflective of the wider market, that means there are potentially millions of UK sole traders managing their business finances through PCAs. That's a significant market that banks could serve more effectively and, by extension, unlock Business Banking revenues and growth for UK small businesses.

Let's try to quantify the opportunity further. Taking fees, charges, overdrafts and funding benefit into consideration, the FCA estimates the financial benefit of BCAs to banks to be five times greater than PCAs. The largest share of that is in the funding benefit, or the value banks put on balances held by businesses which they can use for lending activities

Q: How can banks capitalise on this hidden customer base to unlock this opportunity?

The key to unlocking this opportunity? Developing business propositions that these sole traders find valuable enough to justify any costs associated with a BCA.

Organisations like ours help banks to elevate digital banking channels for Businesses from something that is purely transactional, to the place where they run their business from. At BankiFi, we call this Engagement Banking. An Engagement Banking approach helps banks to better understand and serve businesses to create new revenue streams through increased wallet share, deposits, or cross-selling financial products.

Q: How does the upcoming Making Tax Digital (MTD) legislation factor into this opportunity?

The 2026 legislation for MTD for Income Tax is certainly something to consider in this discussion. For businesses currently using personal accounts, this presents a major challenge, as they may lack the digital tools and capabilities needed to comply. If banks don’t step in to offer solutions, these businesses might turn to alternative service providers, leading to a potential loss of trust and loyalty.

Q: How can banks use MTD as an opportunity to strengthen relationships with small businesses?

The MTD legislation should be viewed as an opportunity for businesses and banks alike. For businesses who may, on the surface, view it as just something else they have to contend with which doesn't directly grow their businesses, should see it as an opportunity to make a manual process much more efficient and/or reduce reliance on a third party.

For banks, it's one of a number of ways in which they can improve their digital channels to better engage with businesses and (re)gain relationship primacy with small businesses. 

Q: What's the key takeaway for banks from this discussion?

The key takeaway is that now is the time for banks to act. By offering tailored solutions that address both the current and future needs of small businesses, banks can position themselves as indispensable partners. The hidden business customer base represents a significant opportunity for growth, and with the right approach, banks can seize this opportunity and drive their own growth in the process.


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