The days of having to go into your local banking branch, stand in a line and talk to someone are long behind us. First came online banking, available to anyone with a desktop or laptop computer. Now a new wave of baking is upon us: app-based banking.
We’ve rounded up all the information you need to know about app-based banking to give you all the tools you need to discover if this new wave of banking is your personal finance future.
What is digital banking?
Digital banking is a way to control your money, usually the use of a smartphone app or web app. It allows you to log on to your account anywhere you have internet access, allowing you constant visibility of where your money is going and allowing you to understand the best way to manage it.
Why should I use app-based banking?
There are several advantages to app-based banking:
Banking access in your pocket
24/7 access to banking support with many companies
Instant spending notifications
Many banking apps offer ways to automatically save money
Another major benefit of app-based banking is the degree to which is has opened up the competitive banking marketplace. Specifically, the new Open Banking regulations have enabled third party apps to innovate off the back of traditional banking’s infrastructure.
Things to know about app-based banking:
Here’s a few things that you may not know about using your mobile as your main point of contact with your bank:
If you’re planning to apply for an overdraft on a banking app, you will be subject to a credit check. Even if you’re not applying for an overdraft, most banking apps require some form of ID to prove that you are who you say you are.
High street banks are protected by the Financial Services Compensation Scheme (FSCS) to the amount of £85,000. Not all app-based banks have this same protection. Make sure you know what level of protection your new app-based bank is offering you, just in case anything goes wrong.
If you’re looking to change banks, switching to an app-based bank is not necessarily the most rewarding. Although there are plenty of functionality rewards (24/7 access, automatic savings etc) the financial rewards, such as a new customer cash incentive, may be greater at a traditional high street bank.
A benefit of an app-based bank is having full access to your account with you at all times. Lots of app-based banks allow a temporary freezing of your account in the case of a lost card, so if you find it again it’s not as much hassle to get a replacement. If you forget your pin, the banking apps also tend to have access to a pin reminder after you complete a couple of security questions.
Not all app-based banks are banks in the traditional sense. Some banking apps work alongside your pre-existing accounts to gather all your spending data in one place, offer you insights into the way you spend your money and suggest ways for financial improvements.
If you want to share your information, your bank has to agree
Many banking apps are designed to help their customers save. These apps access your current bank accounts and use clever computer programs to analyse your spending and look for ways that you could save money.
Previously, you could ask your bank to give these apps permission to view your banking data and the bank could refuse. Now, as long as the app is properly licensed, your bank must grant access that you agree to.
Different types of app-based banking:
App based banking is different to traditional banking in many ways. Unlike traditional banking, app-based banking covers a much wider definition of ‘banking’.
Current account apps:
As part of the app-based banking innovations a clear class of banking app has emerged: the challenger banks. Challenger banks are new, fledgling banks that are aiming to take on the big, traditional high street banks and change the way we save and spend money. Challenger banks such as Starling, Tandem and Monzo are similar to traditional banks in that they offer the full current account experience but with all the added benefits of an app-based bank.
Apps that help you save:
One of the most common reasons for people heading away from traditional banks and towards app-based baking is how easy app-based banking makes it for people to save money. Several providers such as Plum and Chip offer automatic savings for customers. Plum’s clever computer program looks at your spending habits and income and identifies how much you can reasonably save each month and then helps you set up a direct debit to your Plum savings account for this same amount.
Prepaid card apps:
Another way to use app-based banking to help you save is through the use of prepaid cards. Cards with banking companies such as Pockit, Cashplus and Tuxedo allow you to load specific amounts of money on to your card and even further segregate this money into ‘pots’ to spend on different things. This way you don’t have access to too much money all at once and are less likely to fall for those expensive ‘impulse buys’.
Another popular way to use app-based banking is as a way to save through investment. Apps such as Moneybox allow you to make weekly or one off deposits to three risk-assessed categories of investments. Several of the app-based banks also allow you to sign up to a ’round-up’ where your account rounds up your purchases to the nearest pound and uses the change you would have received as an investment.
Traditional banking apps:
App-based banking doesn’t only apply to challenger banks or money saving banking apps, it’s also becoming increasingly possible to bank on your smartphone with traditional banks such as Barclays and Natwest, both of whom have highly rated mobile apps where you an control your money.
After establishing itself as the “expat’s bank” promising a bureaucracy-free personal account, digital bank Monese now also offers a business account. Our review looks at fees, key features, pros and cons.
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