A small business bank for entrepreneurs
Coconut Review – Small Business Banking
The number of freelance and self-employed individuals is increasing as the gig economy takes off. Many people in these situations find that they have to process their own finances, which isn’t always straightforward. Tax returns, expenses, and invoices can all take up valuable time that could be spent actually doing work.
Coconut is a fintech company that’s hoping to make life easier for freelancers. Their app offers a variety of features that makes life easier for those who are self-employed. In our Coconut review, we look at what the company does and the pros and cons of their service.
Quick Look – Pros & Cons
Although Coconut is a useful product, there are both positive and negative points to consider. Here’s a top-level look at the advantages and disadvantages of a Coconut account:
- It makes taxing and accounting far simpler for freelancers and sole traders.
- It’s incredibly easy to get set up with an account using the app.
- It’s a useful tool for managing your small business finances, including invoicing, transfers, and payments with a Mastercard.
- Some features are only in the paid ‘Grow’ plan which costs £5 per month.
- Potentially only suitable for those with a side business or just starting out – more established businesses will need a more comprehensive service.
- There are fees and limits on your cash withdrawals, transactions, and foreign currency purchases.
What is Coconut?
Coconut is a banking app that’s aimed at freelancers and sole traders. Like many challenger banks, the mobile-based bank account gives you all of the functions you need to make and receive payments, including a Mastercard that you get when you sign up. Perhaps the most unique feature that Coconut has is that it aims to make your taxes and expenses easier. It documents your income and outgoings to estimate how much you’ll need to pay.
The firm launched their Beta programme in January 2018 and has continued to add features ever since. Currently, their ‘Start’ current accounts are all that’s available, while the upcoming Grow accounts are ‘coming soon’ according to the Coconut website.
How Does Coconut Work?
Signing up for a Coconut account is pretty straightforward. The first thing you need to do is download the app, available on both iOS and Android. From here, you’ll need to fill out a few simple details about you and your business, provide a picture of your valid ID, and submit a selfie. All of this can be done through the app. Once you’re done, it takes between 1 and 72 hours for them to process your application, which is free.
After your account is approved, you can start using the app’s features, and the Mastercard will be mailed out to you within three business days. Once you have that, the Coconut current account works just like any other mobile banking app. You can make and accept payments and bank transfers, withdraw cash, get notifications and, and manage your money.
The app will automatically keep track of your invoices and payments and will create a tax estimate based on your account activity. However, the Start account doesn’t have the ability to generate tax reports, that’s only available on the upcoming and paid Grow accounts.
What Features Does Coconut Have?
There are plenty of features that make Coconut an appealing prospect for new freelancers and sole traders. Perhaps their most innovative ones are the tax and bookkeeping tools. These will give those who aren’t fans of doing their own takes the opportunity to take the pressure off. You can also generate invoices using the app, although again, the free version limits you to just three per month.
Aside from these attractive features, there are a few other bonuses of using the service:
- You’re not tied in. If you want to close your account or downgrade from the paid version (when it’s available), you can do so without hassle. There are no fees for cancelling, and no waiting period other than for how long it takes their customer service.
- It takes just minutes to get started. If you’re a UK resident, all you need is a valid ID and your personal/business details, and you can open an account using the app.
- Three-factor authentication. You can rest easy that your account is safe. Just like a high-street bank, Coconut uses three-factor authentication. Any payments you make must be verified by you using your phone. Finally, they monitor account activity for any suspicious transactions.
- Your money is safe. All of your funds are ring-fenced by Coconut and never invested or lent out. Coconut is a business current account, not a bank.
What Are the Fees for Using Coconut?
There are several costs for using Coconut, and the amount you’ll pay depends on the level of service you subscribe to. The basic Start account is free to set up and requires no monthly payment. The upcoming Grow account will be priced at £5 per month.
Those on the free account will incur some additional fees. Foreign currency exchange is charged at 2% and a replacement Mastercard costs £4 each time. On the Grow account, both of these are free. No matter which one you choose, you’ll also be charged £1 per withdrawal.
Coconut claim that their free accounts are, ‘best suited for side businesses or if you’re just starting out’ while their paid accounts represent, ‘banking and accounting for your full-time business.’ However, with the fees, limited invoices each month and lack of tax report, the free account may not be ideal for all.
Who is Coconut For?
The target audience for Coconut accounts is freelancers and sole traders. This is a niche that’s growing in number as the gig economy takes off. With over 2 million freelancers in the UK, a number that’s expected to continue growing, it’s clear there’s a need for alternative ways of banking.
For those who struggle with doing their own taxes or baulk even at the thought, the accounting and bookkeeping elements of Coconut are clearly attractive. Having said that, it remains to be seen how reliable and comprehensive the tax reporting aspect of the Grow account will be.
Freelancers and sole traders who have established themselves already will need some convincing to adopt Coconut as their main means of business banking. On the other hand, those who are finding their feet in their industry could certainly benefit from using the service to get started.
What are the Drawbacks of Using Coconut?
There are a few noticeable issues with Coconut at the moment. Perhaps the biggest is that their paid option isn’t currently available to the general public. If you’re a full-time freelancer, the free offering might not be comprehensive enough for you. You can only send three invoices a month using the app for free, and cash withdrawals cost £1 a time.
Another drawback for free users is that there’s a foreign currency exchange fee of 2%. So, if you deal a lot with businesses outside the UK, you’ll stand to lose out. Similarly, if you lose your Mastercard, it will cost you £4 each time to replace it.
Many of these issues seem to be fixable with the premium account, although this will cost you £5 each month. Whether or not the difference justifies that depends somewhat on the individual. Hopefully, the tax reports alone will be worth the fee.
How Safe is Coconut?
Another of the main positives about Coconut is how seriously the company takes security. Along with an encrypted and secure website, the app has three-factor authentication. This means that you can rest assured your account is safe, as you’ll have to verify your details to sign in. Similarly, you’ll have to use the app the authorise transactions. Of course, if someone knows your PIN and has access to your smartphone, they’ll be able to access your account.
In terms of your actual money, although Coconut isn’t covered by the FSCS, they don’t need to be. The company isn’t a bank, only a provider of business current accounts. This means that they don't invest or lend the money you deposit with them. It’s kept in a secure account and is entirely safe.
It’s really great to see companies like Coconut providing financial products specifically for freelancers. When you’re first starting out, you need any advantage you can get. The thought of having an app take care of your taxes at the end of the financial year is honestly an enticing one. However, until we can get a hands-on with how the system works, we have to withhold judgement.
The Start account from Coconut seems useful for those who are running a side business or trying to figure out what it means to be a sole trader. Some of the fees detract from that, but they’re not unreasonable, and not on everything.
For £5, the Grow account does seem like it could be worth it for those who have established their own business. We’re excited to see it in action.
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