Half of UK SMEs Now Use Fintechs for Business Banking

Small and medium-sized enterprises (SMEs) in the UK are increasingly turning away from traditional high-street banks and opting for fintech challengers. According to data from RFI Global, half of SMEs now rely on fintechs for their business banking needs, compared with just a third five years ago. The shift highlights growing demand for personalized services, better technology, and more flexible credit options at a time when access to funding remains a challenge.

Why Fintechs Appeal to SMEs

Fintechs have built their reputation on providing digital banking solutions that prioritize speed, usability, and customization. Mobile banking apps, automated deposit tracking, and tools for managing checking accounts are now central to how many businesses handle daily operations. Half of SMEs report using their mobile apps weekly, up from one in three in 2019, showing how central digital banking has become for entrepreneurs.

Traditional banks, constrained by stricter regulation and capital requirements introduced after the 2008 financial crisis, have scaled back their SME services. This has left fintechs and challenger banks room to attract customers with smoother apps, tailored product recommendations, and real-time insights that high-street lenders often lack.

The Funding Challenge

Access to loans and credit remains a sticking point. Non-traditional banks accounted for 60% of SME lending in 2024, according to the British Business Bank, with lending volumes rising 8% year-on-year to £37.3 billion. However, two-thirds of SMEs still report difficulties securing funding.

Female- and minority-led businesses face even sharper hurdles: 70% of women entrepreneurs and 90% of ethnic minority-led firms say they struggle to raise capital. This uneven access to credit limits the growth potential of innovative enterprises, despite strong appetite among SMEs to expand both domestically and internationally.

Impact on Traditional Banks

The growing presence of fintechs is reshaping the competitive landscape for UK banks. Established lenders face regulatory pressures such as the upcoming Basel 3.1 rules, which could increase capital requirements on SME lending. The Prudential Regulation Authority’s decision on whether to maintain the “SME support factor”—a mechanism that reduces these requirements—remains unresolved.

Some challenger banks are already adjusting their pricing in anticipation of higher costs, which could affect interest rates and loan affordability for SMEs. Meanwhile, new entrants like Revolut and Afin highlight that despite regulatory hurdles, fintechs continue to expand their market share by focusing on agile, tech-driven solutions.

Looking Ahead

SMEs remain surprisingly optimistic despite economic uncertainty. Many plan to grow trade at home and abroad, but their ambitions depend on securing reliable financing. Fintechs are well-placed to deliver tailored digital banking services, yet broader collaboration with regulators and traditional banks will be essential to close the funding gap.

Closing Insight: The rise of fintechs reflects a fundamental shift in UK business banking—towards personalization, digital-first services, and flexible credit. For SMEs, success in the coming years will depend on leveraging fintech innovations while ensuring fair access to loans and deposits. For banks, the challenge lies in adapting quickly enough to stay relevant in a fast-changing landscape.

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