Britain is rearming at a pace not seen in decades. The Defence Investment Plan, published on 30 June 2026, commits £298bn over four years, including an additional £15bn. It also commits to increasing defence spending with small and medium-sized enterprises (SMEs) by 50% by 2028.
That money has to reach the British supply chain to do its job. Yet a growing share of the SMEs in that supply chain report they cannot hold a business account, move money internationally, or raise working capital.
So the money is arriving faster than parts of the sector can bank it. This piece looks at why that gap exists and what a UK defence business can do about it.
TL;DR
- •What is defence debanking? It is when banks and payment providers close or refuse accounts for defence companies, often citing risk appetite rather than anything specific to the business.
- •How widespread is it? The share of Make UK Defence members reporting problems with financial services rose from 11% to 17% in a year.
- •Why does it happen? Generalist compliance models classify the sector by category rather than assessing the individual firm. Legitimate businesses get caught alongside genuinely high-risk ones.
- •How can IFX help? We are an FCA-regulated e-money institution providing cross-border payments and foreign exchange, with compliance-led onboarding run by people who understand complex business profiles.
Why is defence spending rising so quickly in the UK?
UK defence spending is rising because the government has committed £298bn over four years, taking defence to 2.7% of GDP by the end of the decade. That is up from 2.3% when it took office. For suppliers, the effect is more contracts, more entrants to the supply chain, and more money moving across borders.
The scale is significant by any measure. The Defence Investment Plan puts UK spending higher than at any point in the last thirty years. It also positions the UK as NATO’s third-largest cash spender, behind only the United States and Germany. Alongside NATO allies, the UK has committed to reach 3.5% of GDP by 2035.
The plan aims to direct more of that spending toward British firms. It sets out a package of “backing British” measures. The aim is to weight procurement decisions toward companies with a genuine, substantive presence in British communities and supply chains. For SMEs, the 50% uplift by 2028 is worth around an additional £2.5bn, supported by the Defence Office for Small Business Growth.
What does the Defence Investment Plan mean for exporters?
Exports are being pushed in the same direction. UK Export Finance launched a £50bn Defence Export Fund on 30 June 2026, the largest expansion in its hundred-year history. That takes its total capacity to £130bn.
Procurement itself is being reworked to move faster. The Ministry of Defence has introduced Procurement Segmentation, which matches the buying process to the size and complexity of each programme. The aim is to bring capability into service more quickly and engage a broader range of suppliers, including SMEs.
The key point is that more British SMEs are being pulled into defence work, and into international trade, than at any recent point. That only works if the financial plumbing underneath them holds.
Why are defence companies being debanked?
Defence companies are being debanked mainly because generalist compliance models flag the sector by category rather than assessing the individual business. Legitimate firms get grouped with genuinely high-risk ones. The result is closed accounts, held payments, and companies that struggle to find a replacement provider.
The pattern is on the public record. In 2024, two major high-street lenders closed up to 300 accounts belonging to companies categorised under “public administration and defence”. That was in a single year, revealed through Treasury Committee correspondence.
The problem has widened since. Andrew Kinniburgh of Make UK Defence, which represents just under 1,000 defence companies, gave evidence to the Treasury Committee on 3 June 2026. He said the proportion of members reporting problems with financial services had risen from 11% to 17% in a year. Those problems covered account closures, overdrafts and access to working capital.
It sits inside a much larger picture. Treasury Committee evidence found that more than 140,000 small business accounts were closed by major banks in a single year. At least 4,214 were attributed to “risk appetite”, without a clear or consistent definition across the industry.
What is driving defence account closures?
Three mechanics sit behind the defence-specific version of this.
- Environmental, Social and Governance (ESG) classifications. Defence is sometimes grouped with genuinely high-risk categories in risk models. The issue has reached Parliament directly. In a House of Lords debate on 4 June 2025, peers described an “absurdly overzealous interpretation of ESG considerations” affecting defence SMEs. The government responded that there is nothing contradictory between ESG considerations and defence, and that no company should be denied financial services solely because it works in the sector.
- Automated payment screening. Keyword and category filters on international payments can hold legitimate supplier transactions for review. This happens particularly where component descriptions or end destinations trigger a flag.
- Limited alternatives. Some mass market fintech providers publish policies that exclude defence and weapons-related businesses. A debanked defence SME often cannot simply switch. This is a whole-market gap rather than the behaviour of any one firm.
Do the new debanking rules protect defence businesses?
New protections help, but only at the margins. From 28 April 2026, payment service providers must give at least 90 days’ notice before closing an account, an increase from two months. They must also provide a written explanation, so the decision can be challenged. The rules give a business more warning and more grounds to appeal. They do not oblige anyone to open an account in the first place.
What does it mean to actually understand the defence sector?
The issue was never that defence firms are unbankable. It is that generalist compliance models cannot read the sector. They default to caution and offboard businesses that are entirely legitimate. Defence businesses aren’t too risky, once you understand how their world works.
In practice this looks like human-led review by people who recognise what normal looks like in a defence supply chain. That means understanding who a firm’s end customers are, and why a payment to a US or EU component supplier is routine rather than suspicious. It also means understanding how export controls such as the End-User Certificate (EUC) shape legitimate trade.
The difference is in how the review is done, not in a promised outcome. No provider can commit to an outcome before it has assessed a business. Any that does should be treated with caution.
[QUOTE TO CONFIRM: Ciaran] on debanking and long payment cycles.
Ciaran [SURNAME TO CONFIRM]
[JOB TITLE TO CONFIRM], IFX Payments
There is a trap worth naming here, because it catches good businesses. Automated, self-serve onboarding often opens an account quickly, which feels like success. The risk surfaces later. Once the business starts making defence-related payments, triggering keyword flags, or serving complex underlying customers, an automated model can offboard the account. Firms find themselves debanked months in, after they thought they were set up.
Onboarding done properly by people who understand the business is more likely to hold once trading starts. That is the standard worth looking for.
[QUOTE TO CONFIRM: Adam Dowling] on onboarding complex business profiles.
Adam Dowling
[JOB TITLE TO CONFIRM], IFX Payments
What should you ask a payments provider?
Ask how the provider assesses your business, what happens when a payment is flagged, whether it can handle your currency requirements, and who runs your onboarding. The answers separate providers that will still be there in eighteen months from those that will not.
Here is how the three broad options tend to compare.
| Traditional providers | Mass market fintech providers | Specialist e-money institution | |
|---|---|---|---|
| How defence is assessed | Often by sector category and ESG classification | Frequently excluded by published policy | Assessed as an individual business |
| Onboarding | Relationship-based but slow, with generalist compliance | Automated and fast, with limited sector context | Compliance-led, human review by sector-aware teams |
| Ongoing support | Varies, often a general business team | Ticket queue or in-app chat | Named relationship manager |
| International payments | Available, often with limited currency coverage for SMEs | Available, subject to acceptance | 40+ currencies from a single UK IBAN |
| Risk of later offboarding | Present where classification drives review | Higher where the sector sits outside stated policy | Lower where the profile was understood at onboarding |
The table describes general market patterns rather than any specific provider, and individual experience will vary.
Four questions worth asking
In practice, four questions surface most of what matters.
- Does your provider understand your end customers? If they cannot describe what your supply chain looks like, they will struggle to assess your payments.
- What happens when a payment gets flagged, and who reviews it? Ask whether a person reviews it, and how quickly you will hear back.
- Can you hold and pay in the currencies your supply chain actually uses? Most UK defence SMEs paying US or EU component suppliers need US dollars and euros as a minimum.
- Who handles your onboarding, and do they know your sector? This is the question that predicts whether access lasts.
If those answers matter to your business, they are the ones we would want you to ask us too. You can read more about how we support the UK defence supply chain.
Frequently asked questions
What is debanking?
Debanking is when a financial provider closes or refuses an account, often citing risk appetite rather than a specific problem with the customer. For a business it can mean losing the ability to hold funds, pay suppliers or receive payment. Treasury Committee evidence found more than 140,000 small business accounts were closed by major banks in a single year.
Why are defence businesses considered high-risk?
Defence businesses are often classified as high-risk by compliance models that assess the sector as a category rather than the individual company. ESG classifications and automated payment screening compound this. Parliament has examined the issue directly, with the government stating that no company should be denied financial services solely because it works in defence.
Can a UK defence SME open a business account with an e-money institution?
Yes. An e-money institution (EMI) is an FCA-regulated firm authorised to issue electronic money and provide payment services. Many serve businesses that generalist providers find difficult to assess. Access still depends on compliance review, so how that review is carried out matters a great deal.
What protections exist if my account is closed?
From 28 April 2026, payment service providers must give at least 90 days’ notice before closing an account and provide a written explanation. That allows the decision to be challenged through the Financial Ombudsman Service. Certain exceptions apply, including obligations under financial crime law. The rules give more time and more information, but they do not require a provider to offer an account.
What is an alternative to traditional banking for UK defence companies?
An FCA-regulated e-money institution can provide a business account, cross-border payments and foreign exchange as an alternative to traditional banking. For defence firms, the practical difference is whether onboarding and ongoing review are handled by people who understand the sector. That tends to determine whether access lasts.
The contents of this article do not constitute financial advice and are provided for general information purposes only. Links to third-party websites are included for convenience only, and IFX Payments holds no responsibility for the content, services, products, or materials on those sites. All testimonials, reviews, opinions or case studies presented on our website may not be indicative of all customers. Results may vary and customers agree to proceed at their own risk.
