Could app based banks be the future of ethical business banking?

When we opened our business in 2007, one of the first things that we had to do was open a business bank account. As our intention from day one was to be a sustainable business, we wanted a bank that could meet our practical needs and also aligned with our ethos. It turned out to be a lot harder than we had expected, and more than a decade on, it’s a challenge that we’re still struggling with.

In this post, I’ll explain why I think ethical business banking matters, how we’ve struggled to put it into practise over the years and why I believe that an ethical app based business bank may soon provide the answer.

What is ethical banking?

Whatever we might think of bankers, the truth is that we do need them. Banks provide secure ways to store and transfer money, enabling us to trade goods and services.

But have you ever wondered what banks do with the money that they are storing for us? In reality, they don’t simply hold our money in a vault, but use it to make more money by investing it, lending it out and using it as the basis for creating more money. When you imagine your money sitting safely in the vault, chances are that much of it it isn’t really there – it’s is busy being spent by someone else.

This raises two questions; who are they lending our money to and what are they investing it in? While the building societies are fairly straight forward and mostly lend money out in mortgages, most banks are involved in much more diverse and murky activities, including funding large-scale fossil fuel projects, armaments, and deforestation to name a few. And that’s just standard practise. Dig a little deeper and things can get very dark, such as HSBC’s involvement in money laundering for Mexican drug cartels.

Dirty bank banner hung at Barclays HQ entrance by Greenpeace
Greenpeace have campaigned against the funding of Tar Sands oil extraction by Barclays Bank

A growing number of people feel uncomfortable with the idea that their bank will use their money to fund things that don’t align with their personal values, and this is where ethical banking comes in. Put simply, ethical banks are banks that have clear ethical rules on what they will and won’t do with their client’s money. This could simply define what they will not fund or could go further by prioritising funding for positive activities such as renewable energy or affordable housing. They may also take it a step further by embedding their values into the day-to-day operations of the bank itself, for example by operating as a B Corp or a cooperative. If you have strong opinions on how your money should be used, choosing an ethical bank is the logical choice.

Our first ethical business bank account

12 years ago, we went looking for our first business bank account and were keen to find a bank with a strong commitment to good social and environmental practices. It soon became clear that our choices were limited to building societies, The Cooperative Bank and Triodos. The building societies were unable to provide us with a suitable small business current account, and so we approached Triodos, who seemed to have the most forward thinking approach to ethical banking, directing funds to organisations working on positive social and environmental projects.

We quickly found two problems. Triodos could not provide any form of business payment card such as Visa or Mastercard, which we knew would be essential for the operation of our business. As it turned out, there was a bigger blocker – Triodos rejected our application to open a business account on the grounds that we did not operate in a predefined ‘ethical’ industry. As we also have an ethical screening process for new clients, I guess we got a taste of our own medicine!

So we were left with only one option and opened an account with The Cooperative Bank. They had a good value small business account with a visa debit card, had a strong ethical policy and were a cooperative business in themselves. The downside was that despite being the owners of the UK’s first internet bank, Smile, the Coop itself operated in an old fashioned manner and had terrible online banking. It was frustrating but a compromise we were prepared to make for its strong ethical approach.

Ten years on, things had moved backwards

We stuck with the Coop after that, but their old fashioned approach to things did occasionally drive us up the wall and caused us to keep looking for other options, but were amazed how little seemed to change in UK business banking over the next decade.

Then two years ago, when we certified as a B Corp, we got told during the certification process that we didn’t qualify for any points under the ethical banking criteria because The Cooperative Bank is apparently not a cooperative!

It turns out that when The Cooperative Bank ran into financial difficulties in 2013, it was gradually sold off to hedge funds and other investors. Not only that, but in the process, they made subtle changes that weakened their once rock solid ethical policy.

It was time that we finally found an alternative business bank. We considered the building societies again but they were still unable to offer us a suitable business current account. We also looked at Charity Bank but likewise they didn’t have a suitable account. The best option therefore appeared to be Triodos who still have an extremely strong approach to ethical banking.

We spoke to Triodos and thanks to our B Corp certification, they were now willing to offer us a business account. There was just one hitch. They still couldn’t offer a business debit card. We pushed them on this and they told us that debit cards are really hard to administer and that most businesses don’t need them. Perhaps our business is unusual, but I find it hard to believe that most modern businesses can operate efficiently with only bank transfer and cheque payments. We make large amount of purchases online to companies such as hosting and software providers, and unsurprisingly they don’t take cheques. A bank account without a debit card therefore cannot work for us. We had hit a roadblock once again, but maybe there was another solution.

Viva la Revolut!

I have to admit that I was a bit late to the party on app-based banking. I thought it was a gimmick and if I am being honest, as people around me started showing off how cool they were that they had joined an exclusive club called Mondo (now Monzo), I cringed and wanted nothing to do with it. That was until early last year when Vineeta signed up for a Revolut account and I realised what I had been missing out on. I was instantly converted.

I realised what this could do for our business and so I researched app based business bank accounts. At the time I found that there was only one credible option, and it was also with Revolut. I opened the account within an hour, which was a breath of fresh air compared to the 6 weeks it took us to open a Cooperative Bank account when we were already their customer!

Not only did Revolut give us a business debit card, but we could have unique cards for any member of staff and set individual spending limits. This gave us a high degree of flexibility and saved us time because the team no longer needed to keep asking Vineeta and I to pay for things. It also improved security by separating these debit cards from the money in our main business account with the Coop, and by giving us a lot of control over how and where each card can be used. Now we can manage payments far more efficiently, get better exchange rates on foreign currency payments, and have instant visibility of spending through the Revolut Business app and via our finance channel in Slack.

Screenshot of the Revolut business card dashboard
Revolut’s business account allows granular control over company debit cards for any member of staff

With this in place, our plan was to move the bulk of our money to Triodos and then keep a small float in Revolut for day-to-day debit card payments. Revolut might not be an ‘ethical bank’, but it was rated fairly well by Ethical Consumer magazine and so seemed a good option for handling small amounts of money. One of the interesting thing about the new app based banks is that even without defined ethical policies, they are currently too small and too young to have got involved in the most dubious financial dealings. We thought we had found the ultimate combination of ethical banking and modern app based banking.

There was a flaw in our plan

We excitedly set about the process of trying to move our card payments to Revolut and our main banking to Triodos but soon ran into a snag.

A small but significant number of vendors declined payments from our Revolut cards. On investigation, we found out that the Mastercard debit cards supplied by Revolut are not standard debit cards, but are in fact prepaid cash cards that are not accepted by all retailers. This meant that we had to keep using our Cooperative Bank debit card for any instances where Revolut didn’t work. This meant that we couldn’t close the Coop account and so our move to Triodos bank had stalled.

Then recently, news of poor staff treatment at Revolut spread around the internet, raising concerns about their company culture and making us wonder whether they were really a good company to bank with.

Screenshot of the leaked slack message
A leaked Slack message sent to Revolut staff by CEO Nikolay Storonsky

So where does this leave us?

For now, we are continuing to use the Coop as our main bank and Revolut as our main payment card provider until we settle on a long term solution that meets all of our requirements. What we need moving forward is either a complete current account from Triodos including debit card, or a more solid offering from an app based bank – ideally both.

The market is changing fast and I believe that the solution is just around the corner. Tide.co is a new app based bank specifically for businesses but doesn’t seem to have any form of ethical policy. However, Monzo is about to launch a business account and they have a clear ethical policy, not to mention other positive commitments such as being a Living Wage employer. Perhaps this is what we’ve been looking for.

The future of ethical business banking

Banks have a huge influence on our economy and help shape the world that we live in, for better or worse. Ethical banking allows us to take a stand and have some influence over how our money is used and how it impacts the world, but business banking options with strong ethical policies are hard to find in the UK and are archaic in their offering.

Despite 12 years of frustration with business banking in the UK, I’m optimistic about the future. The new app-based banks show us what the future of business banking looks like and can offer huge practical benefits for small businesses like ours. As soon as one of these app based banks has a solid business account and a strong ethical policy, I believe it will be a no brainer for forward thinking businesses to make the switch. It looks like Monzo could be the first to break the deadlock, but the market is changing fast and we could end up with a number of good options in the near future.  I’ll keep my fingers crossed.