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Challenger and mobile banks

By Chiara Cavaglieri

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Challenger and mobile banks

Find out more about the new breed of challenger banks and mobile-only banks that are aiming to revolutionise the way we manage our money.

There's a new wave of startup companies on the banking scene who can't be found on the high-street, but instead 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.

Use of mobile banking apps is set to double to 2.3bn by 2020, while branch visits are expected to fall to 288m a year, according to the banking industry trade body. 

This guide explains what the new challenger and mobile-only banks have to offer, what benefits you'll get, and where your money may be less secure than with a traditional high-street current account provider. Find out:

 

What is a challenger bank or mobile bank?

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 contains 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. 

In fact, many of the new banks featured in this guide don’t like to call themselves banks exclusively, preferring the term ‘data business.’

 

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. 

But 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.

The 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.

 

Monzo bank review

East London-based Monzo bank could be described as 'WhatsApp' or 'Uber' equivalent of banking on your phone.

Monzo aims to make banking quicker and easier, and got its name through a hackathons and asking tech ‘influencers’ to share their app via word of mouth and Twitter. 

It has more than 400,000 people registered and using its 'hot coral' prepaid cards (as of December 2017).

What does Monzo bank offer to customers?

Monzo offers a contactless prepaid Mastercard linked to its smartphone app. You load money via a debit card, bank transfer or through Apple Pay and Android Pay.

The app categorises your spending into an easy-to-read graph, and includes logos of the retailers you've spent money with. And when you spend, the app sends you an instant notification, as payments clear much faster compared to traditional banks. 

If you use your Monzo card abroad, there are no top-up, or spending fees for overseas use. However, Monzo is planning to introduce fees for making withdrawals abroad, after consulting with its online community on what to charge. This could be:

  • A 1% charge in Europe and 2% in the rest of the world
  • A flat 1.5% charge anywhere outside of the UK
  • The ability to withdraw £200 for free per month, followed by a 3% on anything above

Bear in mind that Monzo is not a current account - yet, although it is steadily rolling out its current account across existing users.

If you have its prepaid card, you can't set up direct debits or standing orders, but you can send money to other Monzo users in your phone contacts list.

How long does Monzo take to set up?

Once you’ve got your card, just top-up £100 to kick things off. You can transfer money over from your current account to Monzo with no verification needed.

However, there are three levels of security which affects amount of cash you can withdraw you can make:

  • Unverified: Withdraw ATM limit £100 a day (£300 monthly limit) Max balance at any time is £2,000.
  • Verified: ATM withdrawal limit £1,000 per month (£3,000 yearly). Max balance is £10,000 a year.
  • Enhanced verified: ATM withdrawal limit £2,000 a month. Maximum balance is £10,000 in a year.

To get verified you’ll need to send Monzo a photo of your ID (passport or driving licence) and a five second video of yourself.

How do I communicate with Monzo Bank?

If you run into any problems with the app or have any questions, you can send an in-app message, send an email or contact the bank on Twitter.

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. 

If you do spot fraudulent activity, Monzo will, if you request, charge £30 to cover an investigation, but may refund this if you’ve been the victim of a genuine fraud

Turning the location-based security feature on (iPhone only for now) 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.

Monzo is regulated by the Financial Conduct Authority, but doesn't yet qualify for the Financial Services Compensation Scheme (FSCS). However, money loaded on a Monzo card is ringfenced and backed by Wirecard, so if Monzo goes bankrupt your money is safe.  

What’s coming in the future?

A UK current account, complete with direct debit and standing orders and full FSCS protection, plus existing Monzo features like bill splitting, instant payments to friends, budgeting in the app, and freezing the card. 

For lost or stolen phones, there will be an online portal for emergency payments and transfers. 

Monzo told Which? that the account will continue to be free, and overdraft charges will be totally transparent. 

The bank is rolling out current accounts to existing customers who are keen to be involved early and help with testing. It's aiming to move the entire prepaid customer base over to the current account by the end of 2017. 

 

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.

The London-based firm has built its IT systems from the ground up, and has raised £70m to-date. It has an 'API' platform, which allows third-party companies to to offer their services, through the Starling app. 

Starling 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 current account, 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.

An overdraft of up to £5,000 is also available, which is charged at 15% EAR. The app also features a handy overdraft sliding scale tool, and explains how much it would cost to use your entire overdraft per day. 

Starling have created a useful overdraft calculator that compares different banks' rates and shows you how much it costs to use £1 - £5,000 of an authorised overdraft over seven, 30,60 and 90 days. Bear in mind that from November, overdraft fees will change due to new FCA rules.

Starling is the only branchless bank to offer interest on current account balances - a very modest 0.5% AER on balances up to £2,000 and 0.25% AER on balances above £2,000. The bank has also partnered up with peer-to-peer money transfer firm TransferWise, to enable you to send money overseas.

You can also use your card through Apple Pay

Starling Bank Marketplace

Starling Bank Marketplace allows you to sync up your bank account with third party services to make managing your money easier. It currently has five partnerships:

  • Yoyo Wallet - allows you to collect points and rewards when you shop at retailers. When you pay at them using your Starling account, you collect points automatically. Retailers include Caffe Nero. 
  • Yolt - allows you to see all your bank accounts in one place, using Open Banking
  • Flux - digitises your receipts (at participating retailers) and allows you to access them through your Starling Bank app
  • Moneybox - rounds up your debit card spending to the nearest £1 and adds the change to a stocks and shares Isa, or Junior Isa.
  • Tail - offers cashback and rewards from retailers local to you when you buy using your Starling account

How long does it take to set up a Starling Bank account?

There’s a waiting list of two weeks but once you’re in, setting up an account is straightforward. 

You just pop in a code (sent by the bank by text) and your details and it sends a debit card through the post. 

You then need to record a short video of yourself saying a simple phrase and then send off a photo of your passport or driving licence.

How do I communicate with Starling Bank?

You can chat to the bank on its app, via email, desktop live chat or on Twitter.

Is my money safe with Starling Bank?

As with Monzo, 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, 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.  

The bank is regulated by the FCA and PRA and up to £85,000 of your money is protected by the Financial Services Compensation Scheme

What’s coming in the future?

Starling has been granted permission by regulators that will allow it to offer a wide range of financial products - including loans, mortgages, Isas and other investment products – to their customers directly via Starling app.

 

Revolut review

Set up by a Credit Suisse equity analyst and a former Deutsche bank app developer, two year-old Revolut is aiming to shake up the travel exchange market with its prepaid card

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.

What does Revolut offer?

You have two options: the basic Revolut card or Premium.

Revolut's basic card

The basic prepaid card offers you free ATM withdrawals up to £200 a month, free bank transfers in 26 currencies and no fees on spending abroad in 120 currencies. You can also view a spending summary and can receive real-time notifications via the app. 

To ensure you always have money on your card when you need it, you can set up auto top ups from your current account.

But you can’t set up direct debits or standing orders via Revolut, so this has less functionality that Starling Bank, which offers 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 a more generous monthly free spending limit of £5,000 as well as an £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.

How long does it take to set up 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 £6 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.

How do I communicate with Revolut?

Via its chatbot Rita, who can answer commonly asked questions, as well as live-chat on the app and via Twitter.

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. 

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 and is safe. In the event of an insolvency, you will be able to claim your funds from this segregated account. 

But your money is not protected by the Financial Services Compensation Scheme.

What’s coming in the future?

Revolut says it will be expanding 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?’. 

Other plans it shared with Which? include an integrated investment platform that will allow customers to invest large sums or their spare change into stocks and bonds; integrated travel insurance at market low rates; and the ability to hold, exchange and transfer in cryptocurrency from within the app. 

 

Loot review

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 has now signed up around 5,000 account holders.

What does Loot offer?

Loot's pre-paid Mastercard comes with a sort code and account number, which allows you to make and receive payments. The app allows you to check your balance and any regular payments and deposits, so you can see how much you have left for the rest of the month. There is no overdraft facility.

How long does it take to set up 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.

How do I communicate with Loot?

You can message Loot using the in app-chat.

Is my money safe with Loot?

You can block and unblock your card if it’s lost or stolen. 

The account isn't covered by the Financial Services Compensation Scheme, but Loot told us that money in the account is ring fenced and backed up by Wirecard, which means that it shouldn't be affected if Loot goes bankrupt.

What's coming in the future?

Loot is planning to launch direct debits as well as grouping your spend into categories in a similar way to Starling and Monzo.

It is 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. Cashback at retailers is also being planned. 

 

Monese review

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?

Real-time notifications are sent to your smartphone app when you spend and you can set up direct debits and standing orders, and send and receive money like a normal bank account. But there’s no interest on balances.

However, it's the only branchless account to charge a fee  - it's free for the first 30 days and then £4.95 a month thereafter. Handily, if you don’t use Monese for a few months, you won’t pay fees during that period of inactivity.

It’s worth knowing that Monese isn’t technically a bank so it can’t make loans, invest money or provide interest.

If you want to deposit money you can do via the Post office which costs £1 or via a convenience store with PayPoint for a 2.5% fee. You can only make 10 free withdrawals from ATMs per month with a 50p charge for every withdrawal made thereafter. 

Monese lets you exchange money into 10 currencies, including the US, with international money transfers costing a £1 flat fee.

How long does it take to set up 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, there are 2,000 people on its waiting list so you’ll have to wait a couple of weeks to be approved.

How do I communicate with Monese?

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 is usually a waiting time of around 4-5 minutes.

Is my money safe with Monese?

You can block your card if it’s lost or stolen via the app. 

Monese is licensed as an Electronic Money Institution, which is regulated by the Financial Conduct Authority. This means Monese must keep all customer money separate to its own finances, so if it goes bust, you should get all your money back.

What’s coming in the future?

The company says it has plans to launch new products in the near future.

 

Nimbl review

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 as a regular allowance by bank transfer or standing order given by a parent or guardian, will let the child budget and teach them how to manage money. Nimbl isn’t officially a bank so it can’t pay interest on balances or lend your money out. 

The app also has security features so you can block payments to registered age inappropriate bookmakers, casinos and off-licences.

You can also block cash withdrawals so you can see what’s being spent round-the-clock. When your child is using the card, you’ll get real-time notifications to your phone so you can see how much they’re spending, where they’re spending and where they are.

The card costs £10 a year (in the form of an annual service charge) with the first three months free. To replace a lost or stolen card it costs £5. Cash withdrawals cost 49p each in the UK (the first withdrawal is free).

How long does Nimbl take to set up?

To sign up you fill in some basic contact details online and your child’s name to get your hands on a contactless prepaid card (up to four available), which takes up to seven working days to arrive.

How do I communicate with Nimbl?

You can call Nimbl from 8am- 8pm weekly and Saturdays or you can email or tweet them with any issues.

Is my money safe with Nimbl?

All the money stored on your card is backed by e-money regulations and is ring-fenced on a Barclays account. Nimbl can’t lend out your cash. If you think your card may be lost or stolen you can lock the card remotely through the app.

What’s coming in the future?

Nimbl is planning on launching BACS payments in the next 18 months so your child can get their Saturday job wage paid into the account. Nimbl say they may also partner with a bank in the future to offer car financing once the account user hits 18.

The Open Banking regulations, which are coming into force in early 2018, will not affect Nimbl, which is an e-money product.

 

Atom Bank review

The Durham-based online bank is co-founded by former chairman of Metro Bank and the former CEO of First Direct, and has raised hundreds of millions of pounds in funding. 

It has a banking license, and currently offers savings accounts and mortgages.

What does Atom Bank offer?

Atom Bank offers a range of savings accounts and mortgages. 

Fixed rate accounts range from one to five years, with rates paying between 1.8% - 2.4% AER. 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 offer mortgages through its broker service, which you can access via its app

How long does it take to set up an Atom Bank account?

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.

How do I communicate with Atom Bank?

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 Bank?

Atom uses biometric security (your voice and face) to protect the app, with an added passcode for extra security. 

All money stored in the savings accounts is protected by the Financial Services Compensation Scheme, up to £85,000.

What’s coming in the future?

Atom is planning to launch a current account, but not until 2019. Once that hits the market, you’ll be able to set up direct debits, have 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. 

  • Last updated: December 2017
  • Updated by: Gareth Shaw
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