by Jason Tassie , Director – www.knowyourmoney.co.uk
The banking landscape has transformed over the last few years with the emergence of new providers, largely thanks to the vast growth of technology. Even as little as 10 years ago, the ‘big four’ high street banks dominated the banking market and were the only real choice for people looking to open an account or use their other services.
Over the last few years, however, a range of ‘challenger banks’ have appeared that are changing the way we bank. As well as being new names, what separates these challengers from the traditional banking providers is their online and digital nature. Rather than having a physical branch that customers can visit, these challengers tend to operate solely online, particularly via mobile apps, although some do have premises customers can visit such as Metro Bank and Virgin Money. However, this article will be looking primarily at the digital-only banks that are growing increasingly popular, especially among the younger generations. The use of fintech by these banks makes them more efficient, adaptable, and responsive to change so they can cater for the specific financial needs of their customers.
Digital challenger banks come with a range of additional features that many traditional banks don’t provide, even if they too have a mobile app. Of course, as a standard, most banks would offer current accounts and enable customers to perform several basic services such as transferring money, receiving payments, and withdrawing money. However, mobile challenger banks also come with other features that can help customers to manage their finances and achieve their spending or saving goals.
Depending on how individuals plan to use a challenger bank account and what their priorities are, they will be looking at some of the following features.
Not every challenger bank offers the same services and functions, so it is worth double-checking what each one provides. Most will allow you to transfer money in and out of your account, but not all of them will enable you to set up direct debits or standing orders, and some may charge fees for cash withdrawals.
Many challenger banks also have real-time spending notifications so you can see immediately when money leaves your account. This is not only helpful to keep on top of how much you spend, but also to quickly identify if anyone uses your account fraudulently.
Although there are some exceptions, the majority of challenger banks offer a bank card alongside their digital service, which customers can freeze/unfreeze via their mobile if it gets lost or stolen. Customers should be aware that they may need to pay a small, one-off sum to receive their card.
A key attraction of mobile challenger banks is their ability to help customers control and manage their finances. For example, some may categorise your spending into eating out, leisure, bills, travel, and more, which enables you to identify where you could afford to cut down your expenditure. They may also offer a ‘spending report’ or ‘spending projection’ which further highlights how you could manage your money more effectively, whilst some may give you the option of setting spending limits.
If you’re looking to increase your savings, some challenger banks offer further tools that can help. For example, some have ‘savings pots’ where you can easily transfer money from your main account, schedule monthly deposits, and round up transactions to put any spare change into savings. These savings pots are not the same as a savings account.
Most traditional banks will offer an overdraft facility to its customers, but this is not necessarily something provided by all challengers. If an overdraft is something you think you need, then it is worth looking into whether you can get a prearranged overdraft with a challenger bank and what, if any, fees would apply.
Whilst many challenger bank accounts are free, customers should always look out for potential fees. As discussed above, getting a bank card or overdraft may incur fees, but some challengers may also charge for cash withdrawals and for any of their ‘premium’ accounts which offer additional features.
If you travel a lot, it is worth checking out what overseas functions the challenger bank can provide. For example, some banks may not place any fees on transactions or withdrawals made abroad, whilst some will.
Safety and protection
Particularly with new and unfamiliar names, it is important to do some research to make sure they are a legitimate bank. Every provider should be regulated by the Financial Conduct Authority (FCA), and many will also be part of the Financial Services Compensation Scheme (FSCS). This latter scheme protects the first £85,000 of your savings, ensuring you will receive compensation should anything happen to your provider.
Unlike with a traditional bank, if you have a problem, you can’t just go into your local branch to resolve it. All queries and issues will be dealt with online through the app, and many will provide a 24/7 live chat service, which goes beyond what many high street banks can offer.
What else can challenger banks offer?
Originally, these challenger banks were primarily focused on providing current accounts and helping people manage their everyday banking needs. Now, however, many are expanding into other banking areas, such as savings accounts, mortgages, loans, and more. These extra functions are not offered by every challenger bank, so customers should consider exactly what they currently want from their bank, as well as their potential future needs, to help them decide which provider to choose.