British online only digital bank Monzo is moving into business banking with the launch of services tailored to small and medium sized companies (SMEs). Two new business banking services have been rolled out. The first for freelance professionals and the second for small business owners.

Monzo is one of the UK’s fastest growing challenger banks and has raised a total of £310 million in investment finance since being founded in 2015. The brand is perhaps best known from its noticeable coral-coloured debit cards and user-friendly mobile app, which offers functionalities such as spending tracking and distinct savings pots that account holders can use to organise their finances.

Monzo has attracted almost 4 million British retail customers and is targeting growing that to 5.5 million by the end of the year. Despite the coronavirus hit to market activity, the company expects to meet that target. Co-founder and CEO, the 34-year-old Tom Blomfield recently stated that the business should be “pretty resilient”, to the disruption. Even under normal conditions, around half of the fintech company’s employees work remotely.

Digital-first, or only, challenger banks have recently been making inroads in claiming meaningful market share from the UK’s traditional high street banks. Account holders have in the past been shown to be reticent about making online only banks their main account – defined as the account they have their salary paid into.

Many used their accounts mainly to take advantage of particular services, such as currency exchange or international transfers, provided at much better rates than those typical of established bricks-and-mortar banks. However, that seems to be changing with the level of trust in these new brands now growing. That’s translating into more account holders switching their main account to challenger banks like Monzo, or holding more money there.

Despite its success in attracting retail banking account holders, the foray into business banking may prove an even greater challenge. They sector is particularly concentrated with 80% of the SME banking market accounted for between just four high street banks – Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland Banking Group.

But with low levels of customer satisfaction around the service these banks provide SMEs, Monzo and its online only peers clearly believe it’s a banking sector ripe for disruption. Mr Blomfield comments:

“The problems with mainstream banks’ [small business services] are myriad. It can take weeks to open an account, the additional fees and charges for transactions are painful. The whole thing feels clunky and like it was built 20 or 30 years ago. We are trying to offer an antidote to that.”

Source: Accenture – SME Banking 2020

The recent Accenture SME Banking 2020 report found that a high quality of service to low cost ratio is the most important factor for SMEs when it comes to business banking and Monzo’s 2 new accounts will look to tap into that.

Both the free “business lite” and £5-a-month “business pro” accounts offer integration with popular online accountancy services such as Xero and FreshBooks often used by SMEs. The apps that come with the accounts also offer functionalities including multi-user access, invoicing tools and “tax pots”, which can be set to automatically separate out the portion of revenues coming in needed to cover tax bills.

Mr Blomfield believes Monzo’s new SME banking services could, if the same kind of market share attracted from retail banking is mirrored, attract up to 250,000 business accounts over the next few years. That would represent a 6% market share, something that the retail banking services managed to achieve over 4 years. With a now established brand in retail banking, the hope will be that a similar 6% share of the SME banking sector will be achieved even faster.

The company says that it already has a waiting list of 50,000 SMEs and freelancers that have signed up for an account in advance of the launch. The new services were beta tested with 3000 small business owners before being opened up for general application.