Challenger banks have become an increasingly popular alternative to traditional banking, with the likes of Monzo, Tide, Revolut and Starling Bank gaining more market share and are currently used by 20% of Britons.
Challenger banks are safe to use since they carry most of the same regulations and rules as a traditional bricks and mortar bank – and with the financial services compensation scheme, you are covered for up to £85,000 of your savings if they go bust.
Why would you use a challenger bank over a traditional bank?
Challenger banks are 100% mobile-app or online driven – and they do not have any stores or outlets on the high street.
From a digital, technical and user-friendly standpoint, challenger banks offer a lot of benefits to the customer including notifications, automatic budgeting, no FX fees, no ATM fees and no monthly fees (depending on the product).
For people that want to manage all their finances through their phone, challenger banks offer a great experience, including the likes of Starling Bank that allows you to make quick text payments between friends and send friendly reminders.
Monzo can help you put your money into a savings pot, so if you budget £5 for lunch every day, but you only spend £4, it will put that change into a separate pot automatically.
With Revolut you can buy, exchange and sell cryptocurrency on top of other essential banking features.
Nic Redfern of Know Your Money explains: “Online challenger banks have been leading the way in mobile banking, offering new features and facilities that have made it easier for businesses to manage their finances. Using a mobile app can help businesses to keep track of their expenses and send invoices, and many can also integrate with accounting software to automatically update their accounts.”
“Although many high-street banks now offer mobile apps, in many respects they are still playing catch-up to the online challengers. Challenger banks use the latest Fintech and are more flexible at adapting to customer needs, which means they are in a better position to provide an effective business bank accounts and the banking experience.”
Are challenger banks more expensive than traditional banks?
Most challenger banks do not charge monthly fees for bank accounts, which the average high street bank will charge £5 to £25 per month for.
Challenger banks will usually have a free model you can use, but you may get charged for certain features or you will have to pay for an upgrade. Monzo offers a free service, but you may be charged if taking money out abroad, meanwhile Starling Bank is free but charges when sending money abroad.
In some cases, it is a combination of paying monthly with the option to upgrade. Revolut offers a basic card for £5, which you can upgrade to premium for £6.99 or a metal card for £12.99 to give you access to airport lounges, baggage insurance and cashback on spending, amongst other features.