The financial landscape in the United Kingdom has altered drastically in recent years, making it difficult to manage and understand where to place your money. There are many more banks to select from, as well as many various sorts of banks, such as the emerging breed of challenger banks, which are primarily electronic.
So, what exactly is a challenger banks in the UK?
A challenger bank is a new and small version of a traditional bank. Most challenger banks were launched after 2009 – following the economic crisis of 2008 – and the large percentage were launched after 2014.
Their strategy is to take on large and established banks like HSBC, Lloyds, Barclays, and RBS. Challenger banks attempt to attract clients by offering good rates, greater freedom, quality performance, or all the above.
In a summary, challenger banks are attempting to enter into the business and take advantage of the opportunities that traditional banks have overlooked due to its size, monopolistic practices, and outdated technology structures.
Advantages challenger banks in the UK
It’s crucial to remember that just because a bank considers itself a “challenger” doesn’t imply it’s always better for customers. Challenger banks, on the other hand, generally provide certain benefits.
⦁ Customers are in short supply at challenger banks. A challenger bank doesn’t even have a big list of long-term clients who have been with them for decades, if not centuries. As a result, it must become more inventive. This generally means reduced prices, a faster set-up, and complete transparency.
⦁ They’re computer savvy. Traditional banks are frequently chastised for failing to keep up with technological advancements. The large banks, for example, have been reluctant to create effective and user-friendly mobile banking. Challengers often succeed in user experience because they developed their systems from the ground up with newer technology.
⦁ They’re astute. Letters, lines, and paperwork abound in conventional banks. It might take a long time to just set up an account. Challengers frequently streamline the procedure, enabling you to check in online or on your smartphone in a couple of moments, mostly without providing proof of residence.
Traditional banks are finally catching up to all of this, demonstrating that greater competition delivers better experience for consumers across the board.
Disadvantages challenger banks in the UK
Is it all sweetness with challenger banks? Not always, of course. It all relies on your specific banking requirements and preferences. While challenger banks provide numerous benefits, they also have some significant drawbacks.
⦁ They are usually physically absent. Remember that if you choose an online account, you won’t be capable of walking into a store and interact with a representative. Many issues will need you to discover out on your own.
⦁ They have a tendency to specialize. You may receive current accounts, credit cards, mortgage, loans, and savings accounts even from the same bank if you bank to one of the large banks. With challenger banks, this isn’t always the case. Most of firms only provide a small number of specialized services, while their product lines are constantly increasing.
⦁ They aren’t very good with Cash. If you primarily use cash, utilizing a bank with no physical locations is going to be a hassle.
The main challenger banks in the UK
Monzo became one of the first digital banking institutions to enter the UK market, launching in 2015.
Monzo is recognized for its “hot coral” bankcard and attractive financial software, which features the famous “pots” saving function, budget tools, and spending notifications.
Clients, particularly millennials, like Monzo because of its fee-free international spending and Cash withdrawal.
With 5 million clients in the UK, the bank has launched into joint bank accounts, luxury current accounts, and financial transactions.
Revolut launched its virtual doors in 2015, however unlike Monzo and Starling, it lacks a full UK banking license, instead opting for a European one.
It has four current account tiers: Standard, Plus, Premium, and Metal, and it runs thru the mobile wallet. Monthly charges differ, and the more you spend, the higher your monthly limitations on items like free ATM transactions become.
Revolut also has a broader international footprint, with 35 countries and 12 million private banking customers worldwide. For UK bank account customers, it offers fee-free cash transactions in 30 currencies.
Starling, which launched in 2017, came after Monzo and Revolut. Starling, like its key competitors, is known for its user-friendly banking software, which allows you to create a bank account.
Its current account is free and comes with features including expenditure insights, financial goals, check imaging, fee-free international spending, and an overdraft.
Starling has also extended its commercial banking offerings beyond private accounts, including the introduction of euros and dollars accts.
Cashplus provides digital-only checking accounts that may be managed via the application or digitally, as well as a handful of alternative fee-paying accounts.
Cashplus is a company that specializes in providing accounts to those with weak credit. You receive a card, Cash withdrawal, direct deposit, and an overdraft possibility, as well as all the typical features of a current account. However, it also seeks to improve your credit score by “loan” you the monthly account charge, which you later reimburse, resulting in a punctual payback on your credit profile.
Monese is an online banking software and card that may be used everywhere in Europe, including the United Kingdom. It allows you to add a Eurozone account in addition to your UK account.
In the United Kingdom, you can pick between a free basic checking account (Simple) and two fee-paying bank accounts (Classic and Premium). You get a standard bank card with ATM and transaction capabilities, as well as the option to set up direct deposits or overseas financial transactions – albeit your free transaction limitations are determined by the monthly premium you spend.
Many challenger banks operate without branch offices, allowing them save some cash and provide better services. Some of the finest challenger banks, such as Monzo and Starling Bank, fall under this category. You can accomplish anything using a mobile phone app if you account with both of them.
There are, however, limitations. For contrast, Metro Bank, which began as an elevated competitor devoted to increased customer care in 2010, today has 77 locations throughout England that are accessible up to 12 hours each day.
Lastly, digital rivals are devising new strategies for building substantial form all across United Kingdom. You may transfer money into your Starling digital account at Post Office outlets, for instance.
Are challenger banks in the UK trustworthy?
Basically, it is dependent on the institution. The first step is to confirm that the supplier you’re considering is a bank. That really is, whether or not something has a complete banking license. If does, your savings will be safeguarded up to £85,000, exactly as they are in a high-street bank, due to the Financial Services Compensation Scheme (FSCS).
It doesn’t imply your cash isn’t secure because the supplier isn’t a banker; it just means the degree of security will not be the same. Ensure that the service supplier is authorized by the Financial Conduct Authority (FCA). Many challengers are licensed to issue digital payment by the FCA.
Because challenger banks understand that security is a significant issue for their clients, they normally take extra precautions to guarantee that consumer information is protected and that applications and wallets are securely guarded. If you choose for a virtual profile, though, it’s a good idea to know what occurs if you misplace your wallet or, more critically, your smartphone.
A flurry of so-called ‘challenger banks’ have sprung onto the UK market in recent decades, aiming to unseat major banks like as Barclays and HSBC from the top place in the hearts of consumers by offering reasonable rates and modern, user-friendly internet and mobile applications.
These type of challenger banks have a digital advantage over traditional banks, where it will take a lot of money & time for traditional banks to catch up to the digital abilities of the challenger banks.
The advantages of being an online bank allows them to process information much quicker than their traditional counter part with paperwork and physical locations.
While most challenger banks operate online this means they aren’t good with cash if you need to deposit any, this is where traditional banks have the advantage. But in the day and age of everything going digital, the challenger banks have a clear advantage as our spending habits change.