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Traditional banks have been the solution for businesses to handle their payment and financing needs for many years. And they have been effective for retail customers and larger businesses. 

However, traditional business banking doesn't always meet the needs of businesses, especially for small and medium enterprises (SMEs).

This is often due to their high collateral demands, less personalized customer service stemming from their large client base, and the complexity of their paperwork requirements.

So, it's worth exploring alternative options. This article offers insights into the 8 best banking alternatives to traditional banks in 2024.

Why Are Businesses Leaving Traditional Banks?

Banks are an integral part of a business. However, traditional banks, in particular, can still be difficult to work with due to their complex and lengthy processes.

As more and more demands are unmet by traditional banks, customers begin to turn their attention towards alternative solutions instead. 

These alternatives will be discussed later in this article.

Strict Requirements

Many traditional banks maintain strict requirements for businesses to access their services. When applying for a business bank account or other services like loans, a significant amount of documents is consistently required.

To give you an example, according to a report from the Asian Development Bank, 40% of trade financing applications rejected by banks were from SMEs.

What’s more, just 13.8% of small businesses get approval for loans from big banks, while smaller banks approve up to 19%, and non-bank loans have a 24.7% approval rate. 

Expensive Fees

Working with a traditional bank can be costly. Especially for monthly fees, international transfers, and wire transfers, the costs can add up. These costs can pose challenges to businesses in maintaining profits.

To illustrate, the average monthly fee for an interest checking account is $15.33, and to avoid this fee, an average minimum balance of $8,684 is required.

Additionally, while interest checking accounts typically come with monthly fees and demand a minimum balance to avoid them, these accounts frequently only offer small yields. The average annual percentage yield (APY) on interest checking accounts is 0.05% in 2023.

In terms of international transfers and wire transfers, the associated fees can involve bank service fees, intermediary or correspondent bank handling fees, and foreign currency exchange rates. This results in a wide cost range, typically stretching from USD 0 to USD 65 or even higher. 

Essentially, some financial institutions other than traditional banks might offer better exchange rates.

Lengthy Process

In general, traditional banks may take a significant amount of time for tasks like opening an account, getting a loan, or sending money globally.

This is because traditional banks may require you to visit a branch, provide additional documentation, or wait longer in lines for approval due to a larger customer base or more stringent requirements.

Best Traditional Bank Alternatives

Because of the challenges that we have covered above, individuals and businesses—especially smaller enterprises—have started to look into alternative solutions that are more affordable, convenient, and better tailored to their needs. 

In this section, we will discuss the different available alternatives to traditional banking. We will also give some examples of these alternatives together with some advantages and drawbacks of their solution.

Type Characteristic Best For Main Service
Credit Unions Member-owned, non-profit organizations Small businesses in specific areas or professions • Accounts
• Cards
Loans (personal, business, home, auto and student)
Investment products
Online Banks Internet-based banks Businesses preferring online banking • Digital banking
• Accounts
Credit cards
Currency exchange
Business Loan
Neobanks Digital-only financial institutions, no physical branches Businesses looking for digital solution and multi-currency choices • Digital banking
• Multi-currency accounts
Debit cards
Foreign exchange
Regional Banks Banks that serve specific geographic regions Small businesses in certain regions
Startups with limited banking history
• Accounts
• Credit cards
Investment products
Loans (small business, mortgage)
Insurance
Community Banks Smaller banks that focus on specific areas Small businesses deeply connected with their local community • Saving accounts
• Certificates of deposit
Debit cards
Loans (personal, small business, home, auto) 
Peer-to-Peer Lending Financial platforms connecting borrowers and lenders Quick funds • Loans (personal, business, student, mortgage)
Offshore Bank Accounts Banks located in foreign jurisdictions Businesses operating internationally or those interested in potential tax benefits • Multi-currency accounts
• Digital banking
Foreign exchange
Wealth management
Payment Service Providers Digital payment solutions Businesses seeking diverse payment methods • Payment processing and gateway
• Merchant accounts
Currency conversion and support
Ecommerce Integration 

1. Credit Unions

Credit unions are bank alternatives that allow you to bank locally with like-minded people.

A credit union is a non-profit bank cooperative owned by its members, who pool their money to offer each other loans and other financial services at reasonable interest rates. 

These organizations are rooted in the community, either based on location, profession, or affiliation with the same charitable organization.

Generally, credit unions offer lower fees and stronger customer service than banks do, but they also have fewer branches and ATMs available.

To join a credit union, you must live or work within the area that it serves.

Most cities have several local credit unions; check around your city for options near you!

Joining will usually require an initial deposit of $50 or more, as well as proof of residence or proof of employment within the boundaries set by the specific union (i.e., a utility bill or pay stub).

Numerous credit unions benefit from federal insurance. For example, In the United States, the National Credit Union Share Insurance Fund (NCUSIF) covers losses up to $250,000 for individual accounts if a credit union fails. In the UK, credit unions are covered by the Financial Services Compensation Scheme (FSCS) for up to £85,000 or £170,000, depending on the type of account.

Some notable credit unions include:

  • Navy Federal Credit Union: Serving members of the military, Department of Defense employees, and their families
  • Alliant Credit Union: Open to anyone who lives or works in select Chicago-area counties
  • Bethpage Federal Credit Union: Offers membership to those who live, work, worship, attend school, volunteer, or are related to someone who does any of these things in Nassau and Suffolk counties on Long Island, New York

Common Services Offered by Credit Unions

The availability of products and services varies depending on what each credit union provides, but some commonly offered ones include:

  • Saving accounts
  • Checking accounts
  • Member accounts
  • Investment accounts
  • Retirement accounts
  • Credit and debit cards
  • ATM cards
  • Direct deposits and withdrawals
  • Personal loans
  • Business loans
  • Auto loans
  • Home equity loans 
  • Student loans 

Some might offer mobile banking and internet banking as well. 

Pros of Credit Unions

  • Personalized Service: Credit unions tend to have fewer members than large banks, and because you're banking with a community as an alternative, services are more likely to be personalized and catered to your preferences. 
  • Profits returned in the form of lower fees and better interest rates: Credit unions are member-owned and operated, and their primary goal is to serve the financial needs of their members. Hence, they focus on providing affordable financial services and returning their profits to members. This can be in the form of lower fees for various services, lower interest rates on loans, or higher interest rates on saving accounts.

    In fact, when looking at the United States National Average Rate of Credit Unions compared to those of banks in 2023, they have higher CD rates and lower interest rates on home equity loans, used car loans, and new car loans.
  • Profit returned in the form of additional support in local communities: Many credit unions are dedicated to enhancing not only the financial well-being of their members but also the overall welfare of the community. They often support local charities, fundraisers, schools, and community programs, at times providing financial education to the community.

Cons of Credit Unions

  • Limited Access: Many credit unions limit their membership based on location or occupation
  • Fewer branches and ATMs: Credit Unions will typically have fewer branches and ATM services, which makes accessing your accounts more difficult than banks.
  • Fewer Services: Because credit unions don't have the same resources as traditional banks, the services they offer may also be limited. This includes being unable to access your accounts through digital means.

Who Should Use Credit Unions

✅ Small businesses in certain areas looking for favorable business loans

✅ Those who live in a certain area or work in a particular industry and are looking for lower interest rates on loans or accounts with lower fees. 

✅ Those who live in a community and prefer a more personal banking experience.

2. Online Banks

The first website for online banking services was launched by Stanford Credit Union in 1994. Since then, online banks have become a staple in our society and economy.

Today, certain online banks operate independently, while others function as digital divisions of traditional banks. Online banks can also include established banks that have moved to Internet services or completely new banks that operate exclusively online.

They offer almost all of the services and functionality of traditional brick-and-mortar banks, but they're accessible entirely online - usually with no physical bank branches or ATMs. 

As a result, many online banks have a lower overhead cost and are able to offer competitive interest rates on deposited funds, as well as monthly fee waivers. 

Small businesses that don't have time to visit a bank in person, as well as individuals who want to bank on their own schedule, will find this to be a convenient and viable option.

Opening an account with an online bank is simple, involving little more than filling out an application form and providing proof of identity.

Some notable online banks include:

  • Axos Bank: a full-service, online-only, FDIC-insured bank that provides checking and savings accounts, loans, mortgages, and investment options. You can access their services through their website or mobile app.
  • Varo: An online bank with high-yield saving accounts, credit-builder cards, and cash advances. Deposits are FDIC-insured. 
  • N26: N26 is an online bank holding a full European banking license. They offer no fees, a free bank card, and the ability to set up direct deposits and recurring payments.
  • Mox: A bank that offers a free checking account, no minimum balance requirement, and mobile check deposits

🔎 Insight: Explore our comparison between online banking vs traditional banking.

Common Services Offered by Online Banks

The products and services provided by different online banks vary, but commonly offered ones include:

  • Digital banking
  • Digital wallets
  • Saving accounts
  • Checking accounts
  • Credit cards
  • Currency exchange
  • Funds remittance
  • Business Loan
  • Merchant payment
  • Advisory services
  • Deposit acceptance
  • Cybersecurity for online transactions

Pros of Online Banks

  • Advanced Technology: Online banks usually try to equip themselves with the latest technology, which allows them to provide more developed banking services. For example, automating regular transactions and being able to make instructions from your mobile.
  • Lower Fees: Online banks have lower overhead costs than traditional banks, which allows them to charge lower monthly maintenance and transaction fees for their services.

Cons of Online Banks

  • No Physical Branch: When customers need support, they can only rely on online communication or provided FAQs for support, as most online banks don't have a physical location to cater to customers.
  • Lack of Personal Touch: Because all of the services are provided online, including customer service, customers can find a lack of in-person assistance when dealing with online banks, which can make their experience less personal.
  • Lack of Some Services: Many online-only banks lack specific banking services, namely cash deposits and cashier’s checks. Many do not have ATMs, while a few do.

Who Should Use Online Banks

✅ Time-efficient solution for small businesses without resources for in-person banking.

✅ Ideal for those with hectic schedules or a preference for banking without visiting physical branches.

✅ Ideal for those preferring a simple account-opening process with typically less paperwork

open a business account with Statrys

3. Neobanks

Neobanks are bank alternatives that operate exclusively online.

They differ from traditional online banks in that they may provide fewer services than traditional banks. You may find that some neobanks don't offer loans or credit card services. 

On the other hand, unlike online banks, which may or may not be affiliated with traditional banks, neobanks typically operate as independent financial technology service providers. They are not banks themselves but occasionally collaborate with traditional banks to ensure security and deposit insurance.

Without any physical branches, neobanks don't have the same overhead costs as traditional brick-and-mortar banks. Therefore, they're able to offer their customers lower fees and more competitive interest rates. Numerous neobanks also provide currency exchange and facilitate international payments.

Opening an account with a neobank is done entirely online through their website, online platform, or mobile application. 

Here are some examples of Neobanks:

  • Statrys is a Hong Kong-based neobank that provides multi-currency business accounts to SMEs.
  • Revolut: A bank that offers a current account, budgeting tools, and a contactless Mastercard®
  • Wise, formerly Transferwise, offers payment accounts in many different countries. With a debit card, you can spend your money easily wherever you're at.

🔎 Tip: Discover more about neobank options in our article on the 19 Top Neobanks.

Common Services Offered by Neobanks

Depending on your chosen neobanks, the range of products and services can differ, but some frequently provided ones include

  • Digital banking
  • Digital wallets
  • Savings accounts
  • Current accounts
  • Multi-currency accounts
  • Debit cards
  • Budgeting tools
  • Money transfers
  • Foreign exchange
  • Security measures for online activities

Some neobanks provide loans and investing products, but such offerings are not as common.

Pros of Neobanks

  • Convenience: Neobanks make their services available 24/7 through mobile apps, which gives customers ease of access that traditional banks might have limitations with.
  • Fast Account Setup: Applying for an account with a neobank is usually faster and easier due to the online and digital process. Customers can have their business bank accounts ready within days.
  • Digital-first approach and innovative banking experience: Usually comes with an intuitive mobile app and online platform with advanced features such as real-time spending notifications, budget setting, and a comprehensive dashboard.
  • Competitive rates: Neobanks can offer attractive interest rates on savings accounts and low transaction fees for business accounts, thanks to their reduced overhead.

Cons of Neobanks

  • Digital Security Concerns: As neobanks are relatively new and run completely online, customers may have doubts and concerns regarding the security of their personal data and funds. However, you can often find detailed security measures outlined on their website, explaining how they safeguard your funds, data, and privacy. Typically, this involves partnerships with established banks or institutions and the use of technologies such as encryption.
  • Limited Services: Neobanks may not offer financial services that a traditional bank does, such as loans, investment accounts, and trade financing.

Who Should Use Neobank 

✅ Businesses and individuals that want to secure multi-currency accounts 

✅ Businesses individuals that are comfortable with 100% digital platforms

✅ Frequent travelers seeking competitive currency exchange rates and low foreign transaction fees

4. Regional Banks

Many small businesses find that a regional bank is the best banking option for them.

Regional banks are typically smaller than national banks, and they focus their services on specific geographic areas. This can be a great option for businesses that are located in or do business in a particular region.

However, regional banks are sometimes classified by their size rather than their location. For instance, according to the Federal Reserve, regional banks are those with assets between $10 billion and $100 billion.

Many regional banks offer competitive interest rates on deposited funds and no monthly fees.

They also often have more flexible lending criteria than national banks.

Some notable regional banks include:

  • BB&T: A bank with branches in 15 states that offers small-business checking, savings, and money market accounts as well as term loans and lines of credit
  • TD Bank: A bank with branches along the East Coast that offers small-business checking, savings, and money market accounts, as well as term loans and lines of credit
  • Huntington National Bank: A bank with more than 800 branches in Ohio, Pennsylvania, Michigan, Indiana, West Virginia, Kentucky, and Florida that offers business checking accounts

Common Services Offered by Regional Banks

There are variations in the available products and services among banks, but here are the most common services.

  • Saving accounts
  • Checking accounts
  • Credit cards
  • ATMs
  • Investment products
  • Loans, including small business loans and mortgage loans
  • Insurance

Pros of Regional Banks

  • Region Presence and Knowledge: Because regional banks operate within specific areas, they usually have in-depth knowledge of the regional economy, which can provide insights and personalized services to business customers.
  • Lower fees: Regional banks normally have lower fees in comparison to bigger banks as they have fewer costs in operating within specific areas only.
  • Greater Flexibility: Regional banks, which prioritize their communities, are often more flexible in lending. Unlike larger banks with strict rules, they may consider additional factors, such as supplementary income, when deciding to lend to you.

Cons of Regional Banks

  • Limited Access: Since regional banks only operate within a specific area, customers may find difficulties in accessing services from outside the area.
  • Limited Resources: Regional banks may have fewer resources than traditional banks, which can result in limited and less-developed services, such as the lack of mobile banking.

Who Should Use Regional Banks

✅ Regional business owners looking for personalized financial support and understanding of the regional business landscape

✅ Regional banks may be more accommodating for startups with limited

5. Community Banks

Community banks are another option for businesses that want a bank alternative.

Community banks are small, local banks that focus on providing banking services to the residents and businesses in their communities. 

Technically, they are also characterized by their limited asset size. As outlined by the Federal Reserve's threshold, community banks are defined as financial institutions with assets less than $10 billion.

Community banks typically offer very competitive interest rates on deposited funds and don’t request a monthly fee.

They also often have more flexible lending criteria than national banks.

Some notable community banks include:

  • The Farmers Bank: A community bank located in Kentucky that offers business checking, savings, money market accounts, and certificates of deposit (CDs)
  • The First National Bank: A community bank located in Missouri that offers business checking, savings, money market accounts, and CDs
  • The Home State Bank: A community bank located in Iowa that offers a variety of commercial banking services, including business checking and savings accounts

🔎 Tip: The key difference between regional banks and community banks is size—regional banks have larger assets than community banks.

Common Services Offered by Community Banks

What each bank offers can vary, but some common services include:

  • Saving accounts
  • Certificates of deposit
  • Debit cards
  • Individual loans
  • Small business loans
  • Auto loans
  • Mortgage loans

Pros of Community Banks

  • Community-catered Services: Community banks generally provide more catered services to their customers as they have a better understanding of the community needs giving personalized insights and services.
  • Relationship-Oriented: Community banks focus on building relationships with their customers, and this generally results in more flexibility with services.

Cons of Community Banks

  • Limited Services: Community banks may offer fewer services than traditional banks as they have limited resources that compete with larger retail banks.
  • Limited Reach: As community banks are set up in specific communities or areas, customers who need access or support from outside those areas may find limited access and difficulties in doing so.

Who Should Use Community Banks

✅ Local businesses in communities seeking local and personalized banking options with lower fees.

✅ Businesses deeply connected to their community

6. Peer-to-Peer Lending

Peer-to-peer (P2P) lending, also known as crowd lending or social lending, is a type of financial technology platform that allows individuals to lend or borrow money directly from each other. It is commonly utilized in business for borrowing funds from individual investors.

With P2P lending, businesses post a loan request on a P2P platform, and interested investors can then choose to fund the loan.

Interest rates on P2P loans are typically much lower than those offered by traditional lenders, such as banks. This is because investors in P2P do not have the same overhead costs as traditional lenders. 

On the flip side, these P2P lenders can secure a more favorable return on their savings compared to what a traditional bank savings account would offer.

Some notable peer-to-peer lenders include

  • Lending Club: A leading P2P lender that has funded over $16 billion in loans
  • Kiva: A global P2P lender that has provided over $910 million in loans to date
  • Funding Circle: A leading P2P lender in the United Kingdom
  • Zopa: The largest P2P lender in Europe.

Common Services Offered by Peer-to-Peer Lending

  • Personal loans
  • Business loans
  • Student loans
  • Mortgage financing

Pros of Peer-to-Peer Lending

  • Accessibility: P2P lending has become widely accessible for businesses that need funding, most especially for businesses that are unable to get loans from traditional banks.
  • Faster Approval: Approval times for loans are typically shorter than when applying with banks.

Cons of Peer-to-Peer Lending

  • Higher Risk: There are usually higher risks than traditional lending with banks as there is no collateral, making the loans unsecured.
  • Varying Rates: Interest rates may vary with P2P lending. Though they may offer competitive rates, some borrowers can pay higher rates due to poor credit scores.

Who Should Use Peer-to-Peer Lending

✅ Small business owners needing quick access to capital

✅ Small businesses with limited credit scores 

✅ Those seeking alternatives for personal, mortgage, and student loans.

7. Offshore Bank Accounts

Offshore bank accounts are bank accounts that are located in a country where you are not a resident. 

In business terms, it's a bank account that is located in a different country from where your company is registered.

Offshore banking is practical for individuals with connections to different countries, like expatriates, retirees abroad, property investors, those supporting families in other countries, and those involved in international business.

In essence, these accounts simplify international finances and transfers in different currencies. 

Your business may also profit from lower tax rates compared to your local country.

However, it remains essential to inform tax authorities in your country of residence about your offshore accounts and disclose any interest accrued from them.

🔎 Tip: Wondering the best place to open an offshore bank account? Check out our article about popular countries for offshore banking.

Common Services Offered by Offshore Bank Accounts

  • Multi-currency accounts
  • Foreign exchange services 
  • Digital banking
  • Wealth management

Pros of Offshore Bank Accounts

  • Tax Benefits: With offshore bank accounts, businesses can potentially enjoy lower tax rates in comparison to their local countries.
  • Privacy and Protection: Offshore bank accounts can provide increased privacy and protection of assets due to the difference in banking laws and regulations between the home country and where the offshore account is located.

Cons of Offshore Bank Accounts

  • Higher Fees: Due to the complexity of the account and services, the banks may charge higher fees and required deposits for maintaining an offshore account in comparison to domestic accounts.
  • Negative Perception: Offshore accounts are more commonly associated with illegal activities, namely money laundering, which can bring more attention or suspicion to the business.

Who Should Use Offshore Bank Accounts

✅ Businesses operating in different countries from their registration location

✅ Those interested in potential tax benefits

✅ Those planning to retire in another country

✅ Those possessing property or investments in overseas locations

🔎 Tip: Interested? Learn how to open an offshore bank account.

8. Payment Service Providers

Payment Service Providers are digital platforms enabling businesses to handle payments through the Internet and mobile devices. Most payment services come with a mobile app to add to the convenience.

The systems facilitate funds being transferred from buyers to sellers through different methods such as credit and debit cards and other digital wallets.

They can also be used for different purposes like payment methods for ecommerce websites, bills, and regular money transfers.

Instead of making and receiving payments through traditional bank transfers, businesses can link these solutions to their business accounts to open up more payment methods available to partners and customers.

An example of a payment service provider is Fondy.

Fondy provides a wide range of payment solutions for businesses of all sizes. You can benefit from payments in 150 currencies across over 200 countries and territories. Additionally, you can choose from multiple payment methods, including Open Banking across 300+ banks in the UK and EU, and give your customers complete flexibility.

Fondy's multi-currency accounts are an option for businesses that want to send or receive money quickly and easily in multiple countries. 

Their multi-currency accounts come with a business IBAN, making sending and receiving funds instantly via the Faster Payments network easier. 

It's also a great fit for freelancers and small to medium-sized enterprises (SMEs) that must manage revenue and expenses, pay suppliers, and handle settlements online.

Here are some other examples of Payment Service Providers:

  • PayPal: PayPal is a payment processor that allows businesses to accept payments from their customers and pay bills.
  • Stripe: Stripe is another payment processing platform that enables businesses to receive payments online.
  • Google Wallet: Google Wallet is a digital wallet that allows users to pay using their credit or debit cards through their mobile phones.
  • Apple Pay: Similar to Google Wallet, Apple Pay is a digital wallet that allows users to pay through their Apple devices.

Common Services Offered by Payment Service Providers

  • Payment processing
  • Payment gateway
  • Merchant accounts 
  • Payouts 
  • Currency conversion and multi-currency support
  • Ecommerce Integration 

Pros of Payment Service Providers

  • Quicker Transfers: Transfers are streamlined, making receiving and making payments much faster than traditional bank transfers. Most transfers through this method can be completed almost instantly.
  • Convenience: Payment service providers allow customers or partners to make payments from anywhere at any time, eliminating the need for cash.

Cons of Payment Service Providers

  • Digital Security Concerns: Since all operations are done online and digitally, there may be security concerns that open up the potential for fraud or scams. 
  • Limited Services: With this solution, customers may find limited banking or financial products and services are lacking. Businesses may consider combining this service with another solution for wider coverage.

Who Should Use Payment Service Providers

✅ Businesses wanting to provide diverse payment methods to customers

✅ Businesses wanting to set up recurring payments 

Final Note

After going through the different alternatives to traditional banking, you may have a better idea of what suits the needs of your business.

It's important to weigh out the advantages and drawbacks of each alternative in comparison to what you prioritize as a business. Ultimately, there will be an alternative that will suit your needs.

You may also find that a single solution may need to cover all your requirements, so signing up with two or more alternatives might be the way to go.

Statrys mobile application dashboard showing a total balance in a business account.

FAQs

What is the best alternative to traditional business banking?

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You can consider the following options as an alternative to business banking:

1. Credit Unions
2. Online Banks
3. Neobanks
4. Regional Banks
5. Community Banks
6. Peer-to-Peer Lending
7. Offshore Bank Accounts
8. Payment Service Providers

Are Neobanks actually banks?

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Are online banks safe?

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Can I do business without a bank account?

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