What is a challenger bank or mobile bank?
The new wave of startup companies on the banking scene can't be found on the high-street - they're in your pocket.
Buoyed by relaxed regulation and the growing shift of people using their phones to do their banking business, branchless, mobile-only banks are seeking to win customers from their more established rivals.
The term challenger bank is used to describe any bank that’s looking to challenge the big four in Britain: Barclays, Lloyds Banking Group (which includes Halifax, Lloyds Bank and Bank of Scotland), HSBC and RBS (which includes NatWest and Ulster Bank).
Established players, such as TSB, Virgin Money and Metro Bank, fall into this bracket, but for the purposes of this guide we’ll be looking to shine a light on the upstarts that offer mobile-only, branchless banking.
Challenger banks and mobile banks: the benefits
The new banks we've analysed focus on modern design, personalisation, low fees and snappy customer service to tempt people in.
They also feature real-time payment notifications, meaning you receive an alert every time there is some activity on your account. This not only make it easier to keep track of your spending, but you can also immediately spot if someone's using your account fraudulently.
Most shy away from offering significant interest on current account balances or up-front switch incentives to make the likes of Tesco Bank or Santander sweat.
Their future will lie in your willingness to share your spending data with businesses that have partnered with these new banks, receiving deals based on your spending patterns and behaviour.
Starling Bank review
Starling Bank received a banking licence in July 2016, and launched the UK's first app-only current account in March 2017. Over 300,000 customers have signed up so far.
The London-based firm has built its IT systems from the ground up, raising funding of £48m from hedge fund manager Harald McPike in 2016.
It says that it has a strong focus on data and transparency and aims to woo people who are used to seeing their life in a dataset, similar to users of health-tracking watches Fitbit and Apple Watch.
What does Starling Bank offer?
Starling Bank offers a full personal, joint and business current account, managed via its app, allowing you to set up direct debits and standing orders.
You get instant notifications to your phone when you spend, and there are no fees for overseas spending or cash withdrawals.
The app also automatically categorises spending so you can see how much you’re spending on food, travel, coffee, beer, entertainment and bills, and tells you which retailers you've been spending. Its debit card is compatible with Apple and Android Pay.
Starling was the first branchless bank to offer interest on current account balances, albeit a very modest 0.5% AER on balances up to £2,000 and 0.25% AER on balances above £2,000 (max £85,000).
And, as of November 2018, customers can deposit and withdraw cash at any Post Office branch.
An overdraft of up to £5,000 is available, charged at 15% EAR. The app features a handy overdraft sliding scale tool, and explains how much it would cost to use your entire overdraft per day.
Starling has created a useful overdraft calculator comparing different banks' overdraft rates over seven, 30, 60 and 90 days.
What is the Starling Bank Marketplace?
Starling Bank Marketplace allows you to sync up your bank account with third party services so that you can manage all of your financial products in one place:
- Flux - digitises your receipts (at participating retailers) and allows you to access them through your Starling Bank app
- Habito - a digital mortgage broker
- Kasko - travel insurance in partnership with AXA
- Moneybox - rounds up your debit card spending to the nearest £1 and adds the change to a stocks and shares Isa, or Junior Isa
- Money Dashboard - connect all of your online accounts in one place
- MoneyHub - financial management tool
- Onedox - manage household bills
- PensionBee - a digital pension provider
- Tail - offers cashback and rewards from retailers local to you when you buy using your Starling account
- Wealthify - an online investment Isa firm
- WealthSimple - an online investment manager
- Yolt - connect all of your online accounts in one place
- Yoyo Wallet - collect points and rewards when you shop at participating retailers using your Starling account
Where you are connecting online current accounts and savings e.g. with apps such as Money Dashboard and Yoly, ask the provider exactly how it is accessing your banking data.
Many apps use a combination of both open banking APIs (where you don't need to share your account login details) and screen scraping (where you must share your login details either with the app itself or a third party e.g.Yodlee).
How do I set up a Starling current account?
There's no waiting list anymore. Once you've downloaded the Starling app from the official Android or iPhone app store to your smartphone, setting up an account will take less than five minutes.
You'll be asked to pop in a one-time verification code (sent by text to your phone) and tell the bank your name, date of birth, email address and current home addres.
Next, you'll be asked to record a short video of yourself saying a simple phrase and supply a photo of your passport or driving licence.
Starling will then send your new debit card through the post within 2-3 business days.
You can chat to the bank on its app, via email, desktop live chat or on Twitter.
Is my money safe with Starling?
Instant notifications make it easier to notice fraudulent transactions and you can lock your card instantly within the app if it's missing.
Android users can switch location-based protection on (to prevent fraudulent payments where the location of the card and the app don't match).
Starling has also gone a step further than its rival Monzo, by allowing users to toggle on and off in-store contactless or chip and Pin payments, ATM withdrawals, online payments and mobile wallet payments.
If you lose your phone, Starling says it can block the app on that specific device. You can then use a new phone to download the app and log in to your account.
What happens if Starling Bank goes bust?
Starling Bank is regulated by the Financial Conduct Authority (FCA) and authorised by Prudential Regulation Authority (PRA) so up to £85,000 of your money is protected by the Financial Services Compensation Scheme.
Monzo Bank review
East London-based Monzo Bank got the word out through hackathons and asking tech ‘influencers’ to share its app via word of mouth and Twitter.
More than one million people are registered for its current account and using its 'hot coral' debit cards and customers rave about the bank.
Monzo achieved the highest customer score of 86% in our latest banking satisfaction survey and gained Which? Recommended Provider status for the first time.
What does Monzo Bank offer?
Originally, Monzo offered a contactless prepaid Mastercard linked to its smartphone app but existing users have all been upgraded to a Monzo current account.
As a current account customer, you can have your salary paid in and set up direct debits, standing orders and any other bill payments. You can also move money into your account by making a bank transfer or through Apple and Android Pay.
All Monzo users can send money instantly to other Monzo customers in their phone contacts list.
The app provides a 'spending report' every month showing you where you've spent your money. And you get an instant notification every time you use your card, as payments clear much faster compared to traditional banks.
There are no fees to pay with your card abroad or make online transactions in a foreign currency.
ATM withdrawals are also fee-free anywhere in the world up to a limit of £200 per month – on 18 December 2017 the bank introduced a 3% fee if you take out more than this in any given month.
In November 2018, Monzo introduced its Savings Pot feature, in partnership with Investec, which pays 1% AER to savers with at least £1,000.
Customers can open up to 10 'Pots' and the account is easy-access, although it takes one working day to move money from a Pot back into your Monzo account.
Joint accounts are available now and Monzo announced on its blog that it is looking to launch business accounts in the future.
What is the Monzo Bank Marketplace?
Like Starling, Monzo wants to collaborate with other tech firms to offer additional services through its app. We explain how sharing your data works in our open banking guide.
Goals for the Marketplace include energy switching, cashback, savings accounts, peer-to-peer investments, and mortgages. Two partnerships already in place are:
How do I set up a Monzo current account?
Once you've downloaded the Monzo app - from your phone's official App store - setting up the account should only take a few minutes.
You'll be asked for a copy of photo ID (passport or driving licence) and a five second video of yourself to verify your identity.
Is my money safe with Monzo Bank?
Instant notifications help you respond to unauthorised payments quickly, and you can temporarily freeze your card via the app (if you've lost it) to prevent anyone else from using it.
As with other banks, Monzo must refund unauthorised transactions if you’ve been the victim of a genuine fraud, as long as you haven't been careless.
Turning the location-based security feature on (iPhone only) adds another layer of security. For instance, if your phone is at home and someone tries to pay using your account abroad, the payment should be blocked.
By default, magstripe ATM withdrawals are disabled to prevent ‘skimming’ (details can be copied from the black stripe on the back of your card using devices attached to legitimate machines), though it can be temporarily enabled.
Almost all UK cash machines use chip and Pin to validate your identity, but in other countries they use the magnetic stripe to authorise withdrawals.
For lost or stolen phones, Monzo has told Which? it's planning to create an online portal for emergency payments and transfers.
In the meantime, we would recommend that you maintain an alternative current account so that you can still access money if something goes wrong with your phone, the Monzo app, or your Monzo card.
What happens if Monzo goes bust?
Monzo current accounts are protected by the Financial Services Compensation Scheme (FSCS) up to the sum of £85,000.
Monzo prepaid cards don't qualify for FSCS-protection, although your money is ringfenced and backed by Wirecard, so if Monzo goes bankrupt your money is protected.
Berlin-based challenger N26, founded in 2013, has amassed 1.5million customers across Europe and launched a beta version of its current account to UK customers in October 2018.
What does N26 offer?
As the app is still in beta, function is limited for now - you get a Mastercard debit card (with a unique, transparent design) but you can't pay your salary into the account or set up direct debits and standing orders.
There's no overdraft facility (though this is planned before the end of the year) and the only way to add money to your account is bank transfer (using your sort code and account number).
Otherwise, N26 offers many of the features that Monzo and Starling customers enjoy, including instant push notifications of transactions, spending analytics, in-app card freezing and cheap spending overseas (the only fee is for foreign cash withdrawals at 1.7%).
And, unlike its rivals, customers can access their accounts via 'N26 Web' if they prefer using their laptop or computer, instead of a smartphone.
How do you set up an N26 account?
Adults aged 18 or over can open an account - either directly through the app on Android and iOS, or online at the N26 website, using a desktop computer.
After confirming your personal details, you'll need to prove your identity by showing your passport or driving licence (taking a photo or video) and connecting your smartphone to your new account.
It'll take a few days to receive your N26 Mastercard by post.
Is my money safe with N26?
As with Monzo and Starling, instant push notifications make it easier to spot suspicious activity and you can immediately lock your card if it gets lost (then unlock again if you find it).
Additional safety features include the ability to set daily payment/withdrawal limits and disable online/overseas payments from within the app.
What happens if N26 goes bust?
N26 has a European banking licence so your money isn't covered by the UK Financial Services Compensation Scheme (FSCS), which protects up to £85,000 worth of deposits per institution per customer.
Instead up to €100,000 (just over £90,000) is guaranteed by the German deposit protection scheme in the event of N26 going bust.
Atom Bank review
The Durham-based online bank is co-founded by the former chairman of Metro Bank and the former CEO of First Direct.
For now, it only offers fixed-rate savings accounts and a digital mortgage broker service.
It's raised almost £400m from investors, backed by Spanish Bank BBVA (with a 39% stake), Woodford Investment Management and Toscafund.
What does Atom Bank offer?
Atom Bank offers savings accounts and mortgages.
It's fixed-rate accounts range from one to five years, with rates regularly appearing at the top of the Which? Money Compare savings tables. And you don’t need much to get going as all accounts require a deposit of £50 with a maximum of £100,000 allowed. You can also decide if you want to be paid the interest monthly or annually.
Atom also offers mortgages through its broker service, which you can access via its app.
A current account is also on the cards, but not until 2019. Once that hits the market, you’ll be able to set up direct debits, use an overdraft and have your salary paid into the account.
The bank told Which? it has no plans to offer instant-access savings, although it hasn't ruled this out in the future.
How do you set up an Atom account?
Once you've downloaded the app, it takes about 5 minutes to set up an account. To start, you’ll need to verify your identity via the app with a selfie and by repeating a simple phrase into your phone’s microphone. You don’t need to supply any paper documents such as a passport or proof or address.
You can talk to Atom via its Live Chat function on the app, on the phone, via email or through Twitter.
Is my money safe with Atom?
Once you’ve paid money into your Atom savings account, you can’t withdraw it until the end of your product term, except in cases of financial hardship, so it's highly unlikely that anyone could make a fraudulent withdrawal.
It's important that Atom protects your identity though - and it does this by registering the devices you use (so that it recognises your phone or tablet) and using biometric technology (your voice and face) to secure the app.
What happens if Atom goes bust?
All money stored in an Atom Bank savings account is protected by the Financial Services Compensation Scheme, up to £85,000.
Set up by a Credit Suisse equity analyst and a former Deutsche bank app developer in July 2015, Revolut is aiming to shake up the travel exchange market.
Revolut claims its rates save customers 3% to 5% because it uses the 'Spot Interbank' exchange rate, the wholesale exchange rate. The firm is thought to be worth £300m and claims over 500,000 UK users (over a million across Europe).
What does Revolut offer?
You have two options: the basic Revolut card or Premium, both of which are prepaid debit cards:
Revolut's basic card
Hold and exchange up to 26 currencies in the app and spend on your Revolut card in 120 currencies.
Baisc cardholders can spend, transfer and exchange up to £5,000/€6,000 in total every month (a 0.5% fee applies after this) and ATM withdrawals are free up to £200 a month, then 2%.
As with Monzo and Starling, app features include bill splitting functionality; a spending summary; and real-time notifications of transactions.
To load your account with money, you can set up auto top-ups from your current account. You can also have your salary paid in, using your
But, you can’t set up direct debits or standing orders via Revolut, so this has less functionality that Starling and Monzo Bank, which offer a full current account.
Revolut's Premium card
For those who send and transfer money abroad more frequently than most people, you can sign up to Revolut Premium which costs £6.99 a month, or £72 a year.
This allows for unlimited spending, a more generous £400 cash withdrawal limit and overseas medical insurance thrown in.
It’s worth knowing that Revolut applies a minor mark up on its rates at the weekend of 0.5%- 1.5% as the markets are closed.
Additional Revolut products
Revolut has been developing its products and features quickly, largely through partnerships with other firms:
- Lending Works peer-to-peer loans ranging from £500 up to £25,000 repaid over 12 to 60 months.
- Simplesurance phone or device cover from 90p per week;
- Thomas Cook Group pay-per-day medical and dental travel insurance from £1 per day or fixed at £30 for an annual policy;
- Hold, exchange and transfer in cryptocurrency via the Bitstamp cryptocurrency exchange (Premium only for now) with a 1.5% fee.
Future plans include an integrated investment platform that will allow customers to invest large sums or their spare change into stocks and bonds.
How do I open a Revolut account?
To sign up, you don't need to supply proof of address, go through a credit check or pay a trip to a high street bank branch. But it will cost you £5 to order a card to a UK address (£12 for express delivery).
The Premium card comes with free express delivery. Once you have the card you can start using it in 30 seconds.
Revolut has a 'chatbot' called Rita to answer commonly asked questions, as well as live-chat on the app and via Twitter. If the chatbot can’t help, you'll be transferred to a Revolut customer service
The tech firm is planning to expand Rita’s capabilities so you can get useful answers to more specific questions such as ‘How much did I spend on beer last month?’ or ‘How much do I spend on Uber?’.
Is my money safe with Revolut?
If your card is lost or stolen, you can block the card via in-app support, or over the phone.
Revolut users can opt-in to location-based security to prevent fraudulent transactions e.g. if you and your phone are in Germany and a transaction is attempted in Hong Kong with your card details, it should stop this payment from going through.
You can also enable or disable your physical Revolut card in a single tap if it's lost or stolen. Other features that can be instantly turned on and off in-app include ATM withdrawals, online payments, contactless and magstripe payments.
What happens is Revolut goes bust?
Unlike Atom, Monzo and Starling, Revolut isn't a bank, so your money isn't protected by the Financial Services Compensation Scheme but all customer money is held in ring-fenced client accounts with Barclays or Lloyds which means your money can’t be lent out by the bank.
In the event of an insolvency, you would be able to claim your funds from this segregated account.
Revolut applied for a European banking licence in 2017, so once this is in place funds will be protected up to €100,000 under the European Deposit Protection Scheme.
Not to be confused with the popular classified magazine of the 90's, Loot was set up by 22-year-old Ollie Purdoe and was originally geared towards students who wanted to know how long their loan would last them.
It reportedly has over 50,000 users.
What does Loot offer?
Loot isn't a bank, but its prepaid Mastercard does come with a sort code and account number, which allows you to make and receive payments, including your salary.
There is no overdraft facility and Loot doesn't yet support direct debits. Loot is planning to group spending into categories, in a similar way to Starling and Monzo, and offer cashback at various retailers. It's also creating a feature which allows you to compare your spending against other users so you can see if you’re spending more on coffee than the average person.
How do I open a Loot account?
The app takes five minutes to set up and you need to send a photo of yourself, your ID/Passport and your proof of address. You can message Loot using the in app-chat.
Is my money safe with Loot?
Real-time notifications help you track your spending and spot fraudulent or unauthorised payments.
If you spot a transaction you don't recognise, you can freeze your card in the app. You can also block and unblock your card if it’s lost or stolen.
What happens if Loot goes bust?
The account isn't covered by the Financial Services Compensation Scheme, but your money is ring-fenced and backed up by Wirecard.
You would be able to claim your funds from this segregated account if Loot were to go bust.
Dubbed 'banking for migrants,' Monese was founded by Nunis Keppel after he realised he couldn’t get a bank account as an Estonian immigrant. The bank is on a mission to remove as many hurdles as possible from setting up a bank account in the UK.
What does Monese offer?
Monese isn’t technically a bank so it can’t make loans, invest money or provide interest. But, it does let you open a bank account without a UK address, providing you with a sort code and account number so that you can set-up direct debits and make or receive payments.
Different benefits and fees apply depending on whether you choose the 'Starter' or 'Plus' account:
If you want a Monese debit card you'll be charged a one-off fee of £4.95/€4.95 (depending on whether you choose to run a UK or a Euro account as your primary account).
You can also pay in cash via the Post Office, which costs 2% per transaction with a £2 minimum, or at Paypoint locations, which costs 3.5% with a £3 minimum. In both cases, you can only deposit £500 per day.
ATM cash withdrawals are £1/1€ each. When you make international bank transfers, card transactions or withdrawals, your money is converted at the Mastercard wholesale exchange rate plus 2% of the transaction value (minimum £2/€2 at an ATM).
For a monthly fee of £4.95, you benefit from a free Monese debit card; 10 free ATM cash withdrawals every month (then £1/1€ each) and cheaper cash deposits (£1 at the Post Office and 2.5% with no minimum at Paypoint locations).
Monese also reduces currency exchange fees to 0.5% (minimum fee £2/€2) for international bank transfers and 0.5%-0.75% for card spending and ATM usage abroad, with no minimum.
How do I open a Monese account?
It takes around 5 minutes to set up the mobile app via IOS or Android, but Windows phones aren’t supported). You take a video ‘selfie’, say a short sentence, take a photo of your passport and fill in a few basic details. To set up an account, you don’t need a fixed income, proof of address or a good credit history. Mind you, it says over 50,000 people are on its waiting list so you’ll have to wait a couple of weeks to be approved.
You can chat to Monese via its Estonia-based customer support line (this is routed through a Manchester number so you don’t pay anything), on the app itself, via email and its Twitter page. If you call up, there's usually a waiting time of around 4-5 minutes.
Is my money safe with Monese?
Real-time notifications are sent to your smartphone app when you spend. You can block your card in-app if you notice an unusual transaction or lose your card.
What happens if Monese goes bust?
Monese is licensed as an Electronic Money Institution, not a bank, so you can't claim from the Financial Services Compensation Scheme. But, Monese must keep all customer money separate to its own finances, so if it goes bust, you should get your money back.
Available for 8-18 year olds, Nimbl allows parents to track their child’s spending, while incentivising small savings each month, all in the name of a healthy financial future.
What does Nimbl offer?
Nimbl’s prepaid card, linked to an app, allows parents to track their children’s spending and set spending limits through its app. It claims that using its app will promote financial responsibility among children.
The card costs £15 a year (you get one month free for up to four Nimbl cards). To replace a lost or stolen card it costs £5. Cash withdrawals cost 49p each in the UK (the first withdrawal is free).
How do I open a Nimbl account?
To sign up and receive a contactless prepaid card, you fill in some basic contact details online and your child’s name, which takes up to 10 working days to arrive.
You can call Nimbl from 8am-8pm weekly and Saturdays, or email/Tweet them with any issues.
Is my money safe with Nimbl?
Payments to registered age-inappropriate bookmakers, casinos and off-licences are blocked, although Nimbl can't prevent payments at permitted retailers such as supermarkets.
Parents get real-time notifications to their phone to see how much the child is spending, where they’re spending and where they are. If the card goes missing, it can be locked remotely through the app.
What happens if Nimbl goes bust?
As with the other non-banks in our list, Nimbl can't lend your money out and isn't covered by the Financial Services Compensation Scheme.
Instead, all of the money stored in your account is backed by e-money regulations and ring-fenced in a Barclays account.