The banking landscape has transformed over the last few years with the emergence of recent 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 a merchant account or use their other services.
Over recent years, however, a range of 'challenger banks' have appeared that are changing the way we bank. In addition to being new names, what separates these challengers in the traditional banking providers is the online and digital nature. Instead of having a physical branch that customers can click on, these challengers tend to operate solely online, particularly via mobile apps, even though some do have premises customers can visit such as Metro Bank and Virgin Money. However, this information will be looking primarily at the digital-only banks which are growing increasingly popular, especially among the younger generations. The use of fintech by these banks means they are more efficient, adaptable, and attentive to change so they can cater for the particular financial needs of their customers.
Digital challenger banks come with a range of additional features that many traditional banks don't provide, even when they too have a mobile app. Obviously, as a standard, most banks would offer current accounts and let customers to perform several 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 provides 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 allow you to set up direct debits or standing orders, plus 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 bank account. This is not only helpful to keep on top of just how much you spend, but also to quickly identify if anyone uses your account fraudulently.
Although there are some exceptions, nearly all challenger banks offer a charge card alongside their digital service, which customers can freeze/unfreeze via their mobile whether it gets lost or stolen. Customers must 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 the ability to help customers control and manage their finances. For example, some may categorise your spending into eating at restaurants, leisure, bills, travel, and much more, which enables you to identify enabling you to afford to cut down your expenditure. They might also offer a 'spending report' or 'spending projection' which further highlights how you could manage your money more effectively, whilst some may give you a choice of setting spending limits.
If you are 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 gather transactions to put any spare become savings. These savings pots are not the same as a savings account.
Most traditional banks will offer you an overdraft facility to the customers, but this is not necessarily something provided by all challengers. If an overdraft is one thing you think you need, then it is worth considering 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 consider potential fees. As discussed above, obtaining a bank card or overdraft may incur fees, but some challengers may also charge for money withdrawals and for any of their 'premium' accounts that 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 many 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 lots of will also be part of the Financial Services Compensation Scheme (FSCS). This latter scheme protects the very first lb85,000 of your savings, ensuring you'll receive compensation should anything happen for your provider.
Unlike with a traditional bank, for those who have a problem, you can't just go to your local branch to resolve it. All queries and issues will be dealt with online through the app, and lots of will provide a 24/7 live chat service, which matches beyond what many high-street banks can offer.
What else can challenger banks offer?
Originally, these challenger banks were primarily centered 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 much more. These extra functions are not offered by every challenger bank, so customers should consider exactly what they currently want using their bank, as well as their potential future needs, to assist them to decide which provider to choose.