Neobanks vs. Traditional Banks: What Type of Business Checking Account is Best for You
Considering a business checking account? Whether you're a first-time small-business owner or a serial entrepreneur, you might feel overwhelmed by all the options. We break down some things to consider when choosing between a traditional bank and newer, digital-first banks known as “neobanks.”
Defining a Business Checking
We’re all familiar with the concept of a checking account. It’s a secure bank account that you can use to deposit and withdraw personal funds easily. Similarly, a business checking account is a dedicated checking account for business owners that includes a variety of “business-specific” features that make managing your finances easier. Whether you’re a first-time small business owner or a repeat entrepreneur, having a dedicated business checking account is crucial to your business’ success.
As a first-time small business owner, you might feel overwhelmed by all the options, so we’ve created a set of criteria you may want to consider when opening a business checking account.
A business checking account should have
Minimal to zero service fees
Ability to send and receive ACH payments
Ability to send and receive domestic & international wires
Ability to send and receive checks
Online & mobile banking
Bill pay capabilities
Accounting software integration
Branch & ATM access
Business debit card
Branch & ATM access
Business debit card
Aside from the essentials, some nice-to-haves are:
Access to credit or small business loans
Business credit cards
Rewards & cash back
Attached savings account
Attached treasury account
There are two major categories in our current banking landscape: traditional and neo banks. Here’s the breakdown.
Traditional banks are domestic banks with a significant physical presence that aim to provide a smooth in-person experience to serve general small businesses; some examples include Chase, Bank of America, and Wells Fargo. These national banks have multiple branches across most cities and offer a full range of banking services.
When applying for a business checking account, you can do so in person at a local branch or online. The application process typically requires multiple forms of documentation to prove that both you and your business are legitimate. The turnaround time for approval can vary from a few days to a few weeks, depending on the size and history of your business. Once approved, you’ll set up your business checking account online and receive your debit card in the mail. With a debit card, you can make purchases, deposit funds, and withdraw money from any ATM nationwide.
Traditional banks have started offering online banking in recent years, however, the user experience can be nothing short of frustrating at times. This is because many traditional banks build their online and mobile banking platforms on outdated tech, which can contribute to a clunky, complicated user experience. Additionally, traditional banks offer business credit cards and small business loans that you can apply for when you need extra cash flow to operate and grow your business. Depending on your chosen bank provider, you may also have access to bill pay services and accounting software integrations for an additional fee. While traditional banks may seem like the obvious choice, they often have more restrictions and fees, such as minimum deposit requirements, maintenance fees, and sending and receiving payment fees, which can add heavy operating costs to your business. In addition, receiving support or resolving issues can often take longer and be more impersonal due to a high volume of customers.
Neobanks are digital challenger banks aimed at distrupting traditional, small business banks. These banks are designed to be used online, so they often forego brick-and-mortar locations to save operating costs. While neobanks offer a full suite of banking services, specific offerings can vary depending on your chosen provider.
Unlike traditional banks, neobanks pride themselves on speed and convenience, which means that customers apply online and normally receive a quick decision. Applicants will still need to provide documentation to prove legitimacy, but automation significantly reduces processing time. When approved, customers can easily set up their accounts online, download a mobile banking app, and receive a debit card in the mail. Oftentimes, you’ll have the option to generate virtual cards for ease of use in managing online spending as well.
Neobanks provide a better, smoother online experience when compared to traditional banks. This is mainly because neobanks are built natively online, whereas traditional banks opened brick-and-mortar locations prior to moving their offerings on the web. Neobank platforms are designed to be intuitive, smart, and easy to use without additional help from a bank representative, but when support is needed, customers can reach a specialist via chat, phone, or email.
While traditional banks aim to serve the general small business, neobanks are taking a much more dedicated approach to best serve a niche market. For example, there are neobanks that are dedicated to serving influencers, eCommerce businesses, tech startups, and so on. These neobanks understand the most painful problems that their niche customers face and aim to provide solutions that will help resolve their pains. As a result, neobanks have a tighter relationship with their clients and can provide a much more personalized business banking experience for customers within their niche.
Neobanks normally have transparent pricing, meaning that they will be upfront about which features are free versus which will cost you some cash. In order to compete with traditional banks, neobanks often provide basic banking services at no cost. For example, neobanks normally do not require customers to carry a minimum balance in their account to avoid paying a fee. In addition, neobanks normally offer a full suite of features free of charge, such as ACH and domestic wire payments, accounting software integration, ATM withdraws, and more. While basic banking services are often free, more premium features, like international wire transfers, can require a small fee. In short, neobanks are more cost-effective, transparent, and user-friendly than traditional banks.
Traditional banks vs Neobanks
There are subtle and not-so-subtle differences between the two types of banking solutions available to emerging brands.
What’s the best option for you?
Depending on how long your business has been around, the types of transactions you’re processing, and the speed at which you operate, either banking solution could be appropriate. For brands in their growth stage, we believe neobanks are a more flexible, nimble solution that can scale with you as you grow. The good news is there’s nothing preventing you from moving to a more traditional banking partner as you scale. Often brands use a combination of the two depending on their FinOps goals.
If you’re already an Ampla customer, ask your customer success manager about our new banking solution (firstname.lastname@example.org). Ampla Banking helps simplify business operations and streamlines access to your growth line of credit with new features rolling out in the upcoming months to facilitate more efficient financial operations.
Linda Zhang is the Product Marketing Manager at Ampla, the financial solution dedicated to powering growth for consumer brands. She comes to Ampla with previous GTM and product background from the FinTech industry, specifically the B2B payments space. At Ampla, she works alongside the product, sales, and customer success teams to successfully bring new products to market, including Ampla’s newest banking solution. In her free time, she enjoys trying new restaurants, learning about web3, and traveling.