The world of finance is changing.
Banks are moving from the local high street and into the back pocket of your jeans.
Challenger banks are making it easier than ever to keep track of our finances, to work and play within a budget. If you’ve been seduced by the appeal of challenger banks, chances are you’ve found yourself overwhelmed by the choice on offer, especially if you’re based in the U.K.
Before you start opening accounts and loading your money onto cards, take a look at our definitive guide to the top 6 challenger banks to hit the FinTech scene and discover the plus points and negatives of each, with our handy breakdown.
Let’s get started.
In plain English, a challenger bank is a small retail bank, set up with the aim of challenging larger, more established banking organizations by offering an alternative.
Challenger banks are made to meet the needs of a generation that’s used to having complete transparency and control over almost all aspects of their lives. Make no mistake about it; this is banking for millennials.
Thanks to the rise of FinTech and small, innovative challengers, the banking industry is becoming much more competitive. They’ve already drastically changed the market and helped the U.K banking industry back to health after the recession in 2008.
Nowadays, if you want to figure out how much you’re spending and on what, you can rely on a smartcard and challenger bank app to do the legwork for you. Gone are the days of slaving away over till receipts and money-planning spreadsheets.
Using a banking app gives you this same control over your finances, letting you set aside a disposable income for the month and helping you chart your expenses so you can see where your money is going and where you can cut back. Not to mention the artificial intelligence layering that will lead to a more predictive service.
Challenger banks have also removed more of the friction that comes with traditional banking by doing away with the need to book an appointment with a branch-based member of staff whenever you want to open an account. In most cases, it takes just a few minutes to apply and you can do it all from your phone with photos of important documents or video chat.
It’s no secret that the public’s faith in banking is already shaken, so asking them to put their hard-earned cash into the hands of these independent, fledgling banks seems unthinkable.
But not so fast! Many of these banks have insurance in place to help protect against fraud and theft, so for the most part, you’re getting the same kind of coverage you’d expect day-to-day from your local high street bank.
Biometric security measures, like voice and facial recognition, help to keep these apps safe from prying hands. Worried about someone getting their mitts on your card? Some of these banks have features that will stop your card from working if it isn’t within a set proximity of your phone, and you’ll have the option to block your card from the app, too.
Now that we’ve covered the standard safety concerns, it’s time to talk bigger picture. Challenger banks can appear to be a convenient escape chute for people looking to get away from the traditional banking that let them down so badly in the past, but that isn’t always the case.
If you live in the U.S, you’ll find that the majority of challengers are actually supported by the very banks that they’re attempting to outdate. Getting hold of the charters to secure the investment capital needed to launch in the U.S market isn’t as easy as it is for U.K-based businesses.
Because they’re being pushed into hand-holding with larger, established banking organizations, American challenger banks are incredibly limited in comparison. This isn’t stopping them from trying to break into the industry, but don’t expect to see anything hugely revolutionary for the time being.
For now, it looks like the best way to use these banks is alongside your existing current account. This approach gives you a way to test the concept before making a full switch, along with the security of a standard, long-standing bank and also helps you manage your finances with greater ease. Everyone’s a winner!
Here are 6 of the most popular challenger banks in Europe, the U.S and the U.K. Whether you’re looking to give one a chance or just want to know a little more about them, we’ve taken the liberty of investigating them for you.
The Top 6 Fintech Banking Startups
Who are they?
N26 take their name from the Rubik’s Cube–a complex problem that can be solved in just a few simple moves when you know how. Much like the world of finance, they say.
The Berlin-based bank has a full banking license and is planning a 2017 expansion into a total of 17 countries.
Apart from being the only non-U.K or U.S bank to make the top 6, N26 are also different in that they offer the option to upgrade your account to N26 Black, which includes insurance and free withdrawals in foreign currency.
– MoneyBeam transfers via phone or email
– Instant transaction notifications
– Personalized updates and customizable hashtags for organization
– Transfer cash into 19 different currencies with TransferWise
– Set daily withdrawal limits
The benefits of this bank being exclusive to Europe means that users benefit from being able to transfer money into 19 different currencies with TransferWise. They also won’t get charged for cash withdrawals in foreign currencies if they’re an N26 Black card holder.
Because they’re based on a Mastercard platform, N26 can offer their customers all the perks that come with using an established card, but with the added benefits of an app and tech-driven challenger bank. When you look at it like this, it truly is the best of both worlds.
They are based in Germany, so if you feel a little tentative about taking the leap into branchless app-based banking with an independent organization, it may be better to stay closer to home.
N26 have also just launched plans for a loan application which can be done via the app and without the need for complex paperwork. Unfortunately the new feature is only slated to go live in Germany for the time being.
Who are they?
Loot like to describe themselves as a ‘new banking experience’ and claim to be like a bank, but better. Having said that, they’re actually not a challenger bank at all, but a mobile banking service.
Loot was launched in Spring of 2016 and is still incredibly new to the scene. It raised the bulk of its funding (£1.5 million, to be precise) from Speedinvest and used the money to rebrand and relaunch so they’d appeal to the next generation of banking customer—the millennials.
Loot offers customers a prepaid MasterCard account which is linked to a money management app. The app, like most other challenger bank apps, lets the customer track and chart their spending for better financial insight.
– Instant notifications
– Goals and budget tracking features
– Can be taken overseas
– Compare your spending habits anonymously with other users
– Uses your spending to recommend local hotspots that are offering deals or rewards
Absolutely beautiful branding. Your card is sent out to you in a custom made display envelope, and it’s almost impossible not to buy into the Loot community once you’ve been exposed to it. If you’re out to impress, then this is the bank for you. If only that were enough to save it from the cons!
You can also benefit from being able to block and unblock your card if it gets lost or stolen, just using the app.
Unfortunately, Loot seems to be a company that puts more focus on trendy branding than it does on usability. They’re still very new to the scene, which gives them the opportunity to change all this.
They require you to load your card with cash via a bank transfer—not so handy when you’re standing at the till, ready to pay! The transfer takes a while to go through, which reduces some of the convenience you’d expect from a bank, especially when you consider some of the other competitors in their market.
Who are they?
Monzo is one of the challenger banks with the biggest clout in the U.K FinTech banking scene. They’ve recently secured a banking license, so have much greater freedom than any of the other challenger banks you’ll find listed in this review.
Monzo offers customers a current account, contactless debit cards, and a mobile banking app. They pride themselves on building their systems from scratch, using foundations laid down by Google and Amazon.
It launched an Android version of its app in September 2016 and has secured a fresh round of funding to keep evolving the service—sounds good to us!
· Real-time spending notifications
· No fees
· Instant transfers
· 24/7 support
· Contactless payments
The card will only work within a certain proximity of the phone it’s linked to, so if someone decides to liberate you of your card against your will, they won’t be able to use it.
You can set your budget for disposable income each month and are notified via email when you’re approaching your limit or are spending too quickly for the month—handy if you’re trying to hit saving goals.
Your card doesn’t contain all the usual information printed on it, so it’s easy to run into trouble if certain establishments are picky about the details they can read. This is a small price to pay when you consider all the pros.
Who are they?
After launching in the UK in April 2016, Atom was initially invitation only and was one of the first challenger banks on the scene.
Although they only offer savings accounts and money management functionality, they plan to launch loans and mortgages, personal and business accounts in the coming year, so watch this space.
Something else you need to know about Atom? Their website is really something special.
– 24/7 support
– Predicts how much interest you’ll earn
– Face and voice recognition to log in
– Your own unique atom logo and app personalisation
You can open an account on your phone or tablet and make a deposit in a matter of minutes.
You’re also made to feel like a unique individual when you sign up. You’re assigned your own color palette and logo.
Current accounts aren’t available just yet, but you will be able to open a savings account and make a deposit immediately. You also won’t be able to access your banking online—this is app only at the moment, with no plans to the contrary.
Other drawbacks to this bank are the security features, which many users are complaining about via online review sites.
Who are they?
Simple is one of our U.S-based challenger banks, and was born from a frustration with standard, ‘bricks and mortar’ establishments.
They claim to be passionate about creating an experience for the customer and offer a service free from fees because they don’t have any branches to maintain.
Opening an account takes just a few minutes, as with the majority of our featured banks, and you’re issued with a simple white card to go with your money management app.
– Visualized spending
– Safe-to-spend amounts stop you going over budget
– Saving goals feature
– No fees
The ‘safe-to-spend’ feature has been hailed as the highlight of Simple, with many users stating that it made saving incredibly easy.
The attractive banking card was also another sweet spot, with many claiming that they even got comments when taking it out to pay.
Because it doesn’t have any branches, Simple users have to make deposits via a postal service. It’s also been pointed out that because this ‘challenger bank’ is actually an app that is supported by Bancorp, it doesn’t support checks. This means they can take an average of five days to come through via bill pay. Not ‘simple’ and definitely not ideal.
Who are they?
Like Simple, Moven is another American challenger bank. They say that they offer an innovative solution to the digitally enabled customer, meeting new needs that a standard bank is not able to.
Moven is partnered with CBW Bank to be able to deliver its bank accounts. You can withdraw funds using STAR network ATM machines, so will have access to those all-important dollars.
Both iOS and Android system users can download the app.
– Automatic spending meter
– The Spending Spikes feature alerts you when you’re overspending
– Make payments via email or text
– Withdraw cash without being charged
– Categorizes your purchases
The Moven app integrates with external banking accounts, so you get a better, more comprehensive picture of your finances, rather than just narrowing in on your Moven account.
Your spending is divided out into wants, needs or savings, so you can see where the bulk of your money goes.
Users have reported that depositing cash and checks into a Moven bank account takes far longer than using a standard bank (up to 10 days), so this isn’t a great option for those of us that are slightly more impatient.
It goes without saying that users based in Europe and people that travel frequently would benefit from an N26 account. The seamless and easy money transfers and withdrawals into different currencies will make finance far simpler and the high degree of protection would be a great bonus.
If you’re living in the U.K and want a current account, better make it Monzo. If you’re living in the U.K and only want a savings account, your best best is Atom–at least until they release their current account this year.
If you’re an American challenger bank enthusiast, you’ll be hard-pressed to find a startup that doesn’t represent all the pitfalls of the banks you’re currently linked to. Moven seems to be the more popular choice thanks to its multi-account flexibility, but if you don’t fancy the idea of waiting 10 days for a transfer, try Simple instead.
Trepidation aside, the future of banking looks like it’s going to sit firmly between both the technology world and that of traditional banking methods. It might just be time to do your homework and think about taking that leap.