Challenger and mobile banks
By Chiara Cavaglieri
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.
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.
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 or mobile bank?
- What are the benefits of a challenger bank?
- The Which? review of Monzo Bank
- The Which? review of Starling Bank
- The Which? review of Revolut
- The Which? review of Loot
- The Which? review of Monese
- The Which? review of Nimbl
- The Which? review of Atom 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 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.
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.
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.
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?
Originally, Monzo offered a contactless prepaid Mastercard linked to its smartphone app (you loaded money via a debit card, bank transfer or through Apple Pay and Android Pay) but existing users are steadily being upgraded to a Monzo current account.
Current account customers will be given a new Monzo debit card as well as an account number and sort code so that they can have their salary paid in and set up direct debits, standing orders and any other bill payments.
All Monzo users can use the app to send money instantly to other Monzo customers in their phone contacts list.
The app breaks down your spending into categories and includes logos of the retailers you've spent money with. And when you spend, it sends you an instant notification, as payments clear much faster compared to traditional banks.
Monzo doesn't charge any 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.
How long does Monzo take to set up?
If you've never used Monzo before, you'll need to download the app. Monzo says there is a short waiting list of around two days.
Once you're invited to sign-up, 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.
Existing prepaid card users have all been invited to upgrade (check the app for the invitation), which should only take a few minutes. Your accounts will be merged so that your spending data and balance moves across seamlessly.
You don't have to do this immediately, although Monzo is planning to close all prepaid accounts by early April so your card will stop working then (if you don't switch to the current account you'll be given notice of this in February).
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 Bank is regulated by the Financial Conduct Authority (FCA) and authorised by Prudential Regulation Authority (PRA) so current accounts are protected by the Financial Services Compensation Scheme (FSCS) up to the sum of £85,000.
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.
What’s coming in the future?
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.
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 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.
Once you 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 address, 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.
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.
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.
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 and is safe. In the event of an insolvency, you will be able to claim your funds from this segregated account.
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.
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 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. 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.
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 FCA. 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.
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 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 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: January 2018
- Updated by: Chiara Cavaglieri