FEATURE
BUSINESS BANKING
Say hello to alternative methods of banking
The days of traditional banking are on the decrease due to fundamental economic forces undercutting the traditional role of banks, with around 3,000 branches having closed since 2015. Although banks are still the ‘top dogs’ in business finance, there are a number of alternative options arising such as Open Banking and Crowdfunding.
OPEN BANKING Traditionally, banks have held all of our financial information, but a change in UK law has enabled us to allow other businesses, alongside the bank, to access our financial data. Open Banking is an innovative development designed to
let apps and online services communicate the best deals for its consumers and analyse their spending. With the permission of the consumer, these regulated third parties will deliver services that are tailored specifically to the individual. Plans to move into the digital world are well underway and four out of the nine of the UK’s biggest current account providers will be using Open Banking by 13 January next year. Open Banking is a data-driven service, unlike traditional
banking methods. The idea is that consumers will be more in control of their finances by allowing businesses to have insight into the information in their bank, which they can then utilise for a profitable increase. Potential risks regarding data privacy and security have
emerged. Although banks can block data access from third parties if they suspect fraud, this does not completely eliminate the risk.
CROWDFUNDING Crowdfunding is another alternative method of banking that has become more popular in recent years – in fact, crowdfunding is the most frequently searched term on business funding in the UK. Crowdfunding is very similar to the traditional act
of borrowing – the borrower will fund a venture or project by asking for funds. The payback terms are determined by online platforms, and the lenders will take a small percentage of the funds. Crowdfunding platforms, such as Kickstarter, Patreon and
GoFundMe, are increasingly appealing as they are simple to use. Among the hundreds of online crowdfunding platforms, you can find a number of different types of investment. Debt investment is popular for businesses and can be
referred to as ‘peer-to-peer’ lending where loans are paid back at a pre-agreed rate of interest over time. Debt crowdfunding can be particularly competitive because of its popularity and easily predicted returns. Businesses are also leaning towards reward investments
when crowdfunding. This is where investors provide the funding for a business based solely on future profit, i.e. there is no current asset associated with the financial investment.
56 business network November 2018
‘Crowdfunding platforms, such as Kickstarter, Patreon and GoFundMe, are increasingly appealing’
Equity investments are also used when crowdfunding, in
which investors will trade cash in exchange for a share in the business. If you are looking to run a crowdfunding campaign you
will need to provide as much information as possible, as you will be digitally pitching multiple investors at once. Campaign promotion is essential for success in crowdfunding. The best way to reap the crowdfunding benefits is to build a network of potential investors using advertising, including use of all social media platforms.
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