Challenger Bank Accounts: What Are They? Are They Worth Having?

For as long as there have been traditional banks, there have been established names in the industry of which everybody uses one or the other of. Halifax, Lloyds, Natwest and Santander are just a few of these high street banks, which when asked ‘which bank or building society are you with?’, will likely be your answer. But, as the term ‘challenger bank account’ has become more prevalent over the past few years – it’s time to question the possible benefits of these digital banking competitors, and whether you should be using them instead?

The Rise of Challenger Bank Accounts

The idea of app-based banking isn’t necessarily new, though. Just a few years ago, the big player in the online-only banking industry was PayPal. But now, names such as Starling Bank and Monzo are hot on the tails of this corporate giant and are winning more and more customers from both PayPal itself, and the other ‘big four’ than perhaps initially expected.

So, is what we’re seeing basically just a glorified PayPal?

Well, no. The big difference between the two is that, although having many innovative features, PayPal is primarily a money transfer software tool only. Most business operations include the sending and requesting of money digitally, and individuals; between family and friends. Though you can pay for more and more with PayPal (including offline transactions), it doesn’t classify as a ‘bank’ as it does not possess all the features needed to be categorised as one.

Challenger banks do. And (the clue’s in the name) they’re getting well up to speed with the UK’s most well-known businesses and hold the potential to even overrule them in the market.

But What Is a Challenger Bank Account?

Technically, 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, do actually fall into this bracket, but are not necessarily seen or known as ‘challenger banks’ as they’re pretty widely recognised already. The colloquial term has only recently come into play, and is largely used to describe banks that operate solely online – the two biggest names are ‘Starling’ and ‘Monzo’.

These two UK challenger banks, amongst other names in their industry, focus on modern design, personalisation, low monthly fees and convenient customer service to tempt people in. Tried and tested in real life by our team, to apply for a bank account with Starling, all you need to do is send over some details, a snapshot of ID and a very short video confirming that it is in fact you applying – and you’re done. No back and forth trips to the bank with lengthy meetings to get started.

With e-banking and mobile banking at the forefront of their business, UK challenger banks like these operate solely online (even at the sign-up stage), setting them apart from their traditional competitors.

They also feature instant notifications, meaning you receive an alert every time there is any activity on your account. This, as credited by users of the challenger banks, makes it easier to keep track of your spending, but also helps you to instantly spot any anomalies – meaning preventing fraudulent activity is far easier.

Is It Worth Opening a Challenger Bank?

There are many reasons that more and more are choosing to open a bank with one of these nifty alternatives as opposed to the big players, mainly because of how easy they are to use. With real-time control over your spending, impressive user experience and there-when-you-need-it customer service, these challenger banks play on the frustrations that customers have with the ‘top 4’ and use them to their advantage.

But, as with anything, there are always drawbacks to bog down the positives. And challenger banks, though largely popular now more than ever, are not free from ‘cons’ either. To help you decide whether they’d be right for you, we’ve put together a quick table of advantages and disadvantages to help steer your decision.

Advantages and Disadvantages of Challenger Bank Accounts

Advantages

• Quick and helpful customer service, no waiting in lengthy queues for a small query.
• State of the art UX and modern design makes the apps and websites more pleasant to use.
• Easy registration makes opening an account with a challenger bank a painless process.
• Impressive features such as spending tracking and ‘freeze and unfreeze’ card options help users to control their spending.
• Good interest rates and low fees aim to beat the ‘top’ 4 and encourage more people to sign up.
• A growing trend, meaning as more and more sign up – the features the banks can offer are only expected to improve.

Disadvantages

• Some UK challenger banks will share your spending data with third parties, though they are transparent with this when you sign up.
• Not ever bank offers a physical debit or credit card. And with no physical plastic issued, and no Nationwide stores, some may feel as though they’re taking a risk by investing their finances in an account that operates solely online.
• As they are somewhat a new venture, the years-long reputation and security you get with the top 4 isn’t necessarily there.

As with anything, there are certain ‘pros’ and ‘cons’ to challenger banks, so your decision depends on what you want out of a bank. If you’re open to new ideas and like the thought of managing your finances online, then the likes of Monzo or Starling Bank will certainly offer you an abundance of helpful features in exchange for you opening an account with them. But on the flip side, if you prefer the security of a traditional and reputable bank, then you may be better off keeping your money where it is.

Do you have an account with a challenger bank, or are you considering opening one? We’d love to hear your thoughts. Tweet us at @moneybright, or with the hashtag #MoneyBrightAdvice and let us know today.