Traditional vs challenger business accounts: what UK businesses need to know

The UK’s banking landscape is shifting. For decades, traditional high street banks were the default for small businesses offering stability, branch access and a sense of familiarity. But in recent years, challenger banks have gained serious ground by offering digital-first services with fewer fees and more flexibility.

So, what’s the difference between a traditional and a challenger business bank account? And which one makes more sense for your business in 2025?

What defines a traditional bank vs a challenger?

Traditional banks are long-established institutions like Barclays, NatWest, Lloyds or HSBC. They typically have physical branches, in-person support, and offer a wide range of financial services beyond banking including lending, insurance, and investments.

Challenger banks, on the other hand, are often newer, digital-only providers like Starling Bank, Tide, or Monzo Business. They focus on mobile banking, fast setup, and innovative tech-based solutions like smart accounting tools, in-app invoicing, and instant international payments.

The biggest difference? Many challenger banks offer accounts with fewer monthly fees, easier setup, but their features are predominantly tailored to sole traders, limited companies, and startups. Both tend to fall short when it comes to supporting established businesses who typically have between 5 and 250 employees, a gap addressed by Allica's business account.

Fees: what are you really paying for?

Fee structures vary, but the differences can be significant. Traditional banks often charge:

• Monthly account fees
• Fees for cash deposits
• Charges for certain online payments or same-day transfers

Challenger banks tend to offer more transparent pricing. Many provide free plans with optional paid plans for more advanced features like multiple user access, advanced cash flow insights, or integrations with accounting software.

It’s important to look beyond the headline rate. Some accounts come with hidden costs like limits on free transfers or additional charges for support or international payments. Review the full fee structure before you switch.

Features: what do you actually get?

Traditional banks usually offer:

• In-branch services
• Call centre customer services
• A broad range of business services (like loans or insurance)

Challenger banks lean into speed and automation. You’ll often find:

• Real-time notifications
• Smart budgeting or forecasting tools
• Quick access to payments and card controls
• Seamless integration with tools like Xero, FreeAgent or QuickBooks

For some small businesses, that’s enough. For others, the broader suite offered by high street banks may still be an important factor especially if you need physical access, cheque services, or want to keep all your business accounts under one roof.

Access: digital convenience vs in-person support

Challenger banks are built for remote access. You can usually do everything from opening your business account to approving payments through a banking app. Many also offer easy access to transaction histories, export features, and smart categorisation to help with financial reporting.

Traditional banks still operate physical branches, which some businesses prefer when handling cash, cheques, or more complex issues. That said, many high street banks are now closing locations, which may reduce the value of in-person support.

For businesses that prioritise better access on the go, mobile banks offer the kind of online banking experience that saves time and streamlines operations.

Tools like those discussed in How to Choose the Right Business Banking App can be a game changer

With Allica, you get the best of both worlds; your bank in your pocket, and a dedicated relationship manager who you can have on speed dial.

Are challenger banks safe for business customers?

Yes. Most UK-regulated challenger banks are authorised by the The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), and eligible deposits are protected by the Financial Services Compensation Scheme (FSCS) for up to £85,000, the same as traditional banks.

Find out more about FSCS eligibility in our full guide.

The key is to check that your provider is fully regulated and FSCS-protected. Some app-based services may operate under different licences or partner arrangements, so it's worth confirming.

Whether you choose a traditional bank or a challenger, your funds are protected as long as the account meets eligibility rules.

Who should consider switching to a challenger bank?

Challenger accounts often appeal to:

• Startups and sole traders who want a fast, mobile setup
• Businesses looking to reduce monthly account fees
• Limited companies wanting smarter money tools
• Those managing cash flow with real-time insights
• Teams already using cloud accounting software

If your current provider doesn’t support the way you work or charges for basic services, it may be time to consider switching to a challenger bank.

Who might benefit from staying with a traditional bank?

Some businesses still value in-person support especially when things get more complex. Whether it’s applying for a loan, handling large cash deposits or managing multiple accounts, traditional banks can offer hands-on help that’s harder to replicate online.

You also get access to a wider range of services. That includes overdrafts, long-term lending, and other financial products that are often easier to manage when everything sits under one provider.

It can also make sense to stick with a high street bank if your business is larger or already has established relationships in place. If you're dealing with multiple entities, currencies or planning future investment, staying put might save you time down the line.

Final thoughts

The right business bank account depends on what your business values most whether that’s face-to-face service, lower fees, or access to more advanced features on the move.

Challenger banks offer flexibility, speed and tech-led tools designed for modern businesses. Traditional banks bring depth, heritage, and a broader product range. Both serve a purpose and both continue to evolve as the UK banking landscape shifts.

Compare carefully, ask the right questions, and choose the provider that fits the way you manage your business today.

Business banking that fits your way of working

Whether you're ready to move on from a high street provider or want a more flexible setup, the Allica Business Rewards Account is a business current account built for established SME businesses. You get smart digital tools, up to 1.5% cashback* on eligible card spend, and no monthly fees*, plus support from a dedicated relationship manager who understands how you operate.

It’s a business bank account that keeps up as your business evolves.

Open your Business Current Account today.

* Cashback is variable based on eligibility and spend. See a full list of limits and fees here.

Links were live and information was correct at the time of writing the article.

Disclaimer: This is information – not financial advice or recommendation

The content and materials featured in this article are for your information and education only, and are not intended to take into consideration any particular recipients’ financial situation. The product details and interest rates referred to are correct at the time of writing.

The information does not constitute financial advice or recommendation and should not be considered as such. Allica Bank will not accept any liability for any loss, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.