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In the last few years, the British banking landscape has changed dramatically, to the point where it can be confusing to navigate. There are not only many more banks to choose from but also many different types of bank.
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Monzo was one of the first digital challenger banks to launch in the UK, hitting the market back in 2015.
Monzo became well known for its “hot coral” payment card and slick banking app, which still includes its popular “pots” savings feature, budgeting tools and spending notifications.
Its fee-free overseas spending and ATM withdrawals have also made Monzo a hit with customers, particularly Millennials.
The bank has branched out into joint accounts, premium current accounts and business accounts, and now has over four million customers in the UK.
Revolut opened it virtual doors in 2015, although unlike Monzo and Starling it doesn’t have a full UK banking licence, using a European one to operate here instead.
It operates through its mobile banking app and offers four tiers of current account – Standard, Plus, Premium and Metal. The monthly fees vary, with the more you pay the more your monthly limits increase on things like free ATM withdrawals.
Revolut also has a more international reach – it’s available in 35 countries and has 12 million personal banking customers across the world. It offer fee-free currency transfers in 29 currencies for UK bank account holders.
Following Monzo and Revolut was Starling, which went live in 2017. Like its two main rivals, Starling’s big draw is its intuitive banking app, through which you can open a bank account.
Its current account is free and offers features such as spending insights, savings goals, cheque imaging, fee-free spending abroad, plus an overdraft option.
Starling has also expanded its operations from personal accounts by building out its business banking offering, including the launch of euro and dollar accounts.
Cashplus offers digital-only current accounts, available to manage through its app or online, and there are a couple of different fee-paying accounts to choose from.
Cashplus specialises in offering accounts to customers with bad credit. You get all the standard features of a current account, such as a card, ATM withdrawals, direct debits and overdraft option. But it also aims to help build up your credit score by “lending” the monthly account fee to you, which you then pay back, counting as a timely repayment on your credit file.
Monese is a digital banking app and card, which can be opened across Europe, including in the UK. It has the option of adding a Euzozone account alongside your UK account.
In the UK there is the free basic bank account (Simple), and two fee-paying ones (Classic and Premium) to choose from. You get the usual debit card with ATM and payment functionality, plus the ability to set up direct debits or foreign money transfers – though the monthly fee you pay determines your free payment limits.
A challenger bank is one that’s smaller and newer than a traditional bank. By newer, we mean that most challenger banks were founded after 2009 – so after the 2008 global financial crisis – and the vast majority began after 2014.
Their plan is to compete with big banks such as HSBC, Lloyds, Barclays and RBS. By offering cheaper deals, more flexibility, better service or all of the above, challenger banks hope to win over customers.
In a nutshell, challenger banks are trying to squeeze into the market and take opportunities that mainstream banks have been neglecting because of their size, relative market dominance and older technology systems.
It’s important to understand that just because a bank calls itself a “challenger” it doesn’t mean that it’s necessarily better for the consumer. It is true, however, that challenger banks usually bring some advantages.
Traditional banks are now starting to catch up on all of this, which is living proof that more competition means better service for consumers across the whole market.
So, is it all roses with challenger banks? Well, not necessarily. It really depends on your banking needs and preferences. While challenger banks bring many advantages, there are also some notable disadvantages.
Many challenger banks don’t have physical branches, which allows them to save money and offer better deals. This is true for some of the best challenger banks, such as Monzo and Starling Bank. If you bank with either of these, you can do everything through a mobile app.
However, there are exceptions. Metro Bank, for example, launched in 2010 as a high-street challenger dedicated to better customer service, and now has 66 branches across England that stay open up to 12 hours a day.
Finally, digital challengers are coming up with new ways of establishing their physical presence across the UK. Starling, for example, allows you to deposit cash into your digital account at Post Office branches.
The trick to comparing challenger banks – or any personal finance service – is to know your needs and habits. There is no one bank that’s the best fit for everyone. Set your priorities, think about what you want to get out of your bank account and only then compare your options. We’ve put together a list of questions you can ask yourself to kick-start your research.
Once you know all this, you can then compare fees, rates and products knowing exactly what your priorities are to help find the best challenger bank for you. Don’t forget to look at what traditional banks offer as well – they may surprise you.
It obviously depends on the bank. The first thing to do is to check that the provider you’re looking at is actually a bank. That is to say, whether it has a full banking licence or not. If it does, your deposits will be protected up to £85,000, just as they are in a high-street bank, thanks to the Financial Services Compensation Scheme (FSCS).
If the provider isn’t a bank, it doesn’t mean your money isn’t safe, but it does mean that the level of protection isn’t the same. Always make sure that the provider is regulated by the Financial Conduct Authority (FCA). Many challengers hold an FCA licence to issue electronic money.
Challenger banks know that security is a big concern for their customers, so they usually take great care to ensure that customer data is safe and that apps and cards are well protected. However, if you are going for a digital-only account, it’s good practice to be aware in advance of what happens if you lose your card (can you block it or cancel it directly from the app?) or, more importantly, your phone (would someone be able to access your banking app and your money?).
Table ordered by percentage of customers who said they’d recommend the brand to a friend (recommendation score).
|Digital banking provider||Customer satisfaction score|
|Bank of Scotland||63%|
|7||Bank of Scotland||77%|
|11=||Royal Bank of Scotland||71%|
|12||The Co-operative Bank||67%|
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Currently over a quarter of Brits (27%) say they have at least one bank account with a digital-only bank. This is a percentage increase of 16% from last year when 23% of Brits said they had an account with a digital bank. It is also over 3 times the amount of Brits who had one in January 2019 (9%).
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