A number of next generation 'challenger banks' are offering a proactive approach to money management in their app based banking products. Esther Shaw explores these banks and the level of safety they offer their customers

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Esther Shaw
03 Mar 2017

In recent years, a cluster of so-called challenger banks have sprung up to take on the weightier high-street giants.


Bank of England reforms have made it easier for new entrants to join the market, and more are expected to do so this year.


Many of the newest players are looking to appeal to modern customers with “online-only” or “mobile-only” offerings using the latest technology, rather than expensive brick-and-mortar branches.


The emphasis is on real-time balance information, biometric security, simple money transfers, and predictive banking.


The arrival of these newcomers is good news for consumers, as increased competition should mean better deals and superior service.


In fact, challenger banks have featured heavily in the savings “best buy” tables (such as fixed-rate bonds) for some time now, filling the space left by the big high-street banks. Going forward, these new players are expected to continue to do so, as they are keen to make a good impression, build brand awareness, and get money in through the door.


At the same time, there is also a big emphasis on personalised customer service, including greater transparency around where your money is going.


The advantage these digital upstarts have over the high-street giants is the fact they haven’t been tarnished by trust issues (such as the PPI scandal) or technology problems (such as IT glitches). Their hope is to steal a march over their longer-established rivals by starting afresh from a reputational and technological standpoint.

But if you are thinking about making the switch and slotting money away with one of these less well-known names, you will want to be sure that your money is safe.


The key is to check whether your chosen bank is regulated by the City watchdog, the Financial Conduct Authority (FCA), and whether it comes under the protection of the UK Financial Services Compensation Scheme (FSCS). The FSCS protects savings up to £85,000 if your bank goes bust.


Equally, it’s worth noting that there is an equivalent European compensation scheme which covers foreign-domiciled banks, such as RCI (the French bank), Ikano (a Swedish bank) and Fidor (the German bank).


Here we take a look at what’s on offer from some of the key new players – and what protection you can expect.



In 2016, Atom Bank became the first of a new breed of digital-only challenger banks to open its virtual doors to an innovative banking platform.


Atom’s customer-focussed business has launched on both IOS and Android platforms.


The app-only bank says: “We are determined to set the agenda for what the future of banking looks like, redefining the relationship customers have with their money, providing a unique branch-free banking experience, built around the best interests of customers.”
Atom adds that it wants customers to be more engaged with their finances.


In terms of products, the bank has introduced fixed saver accounts with one, two, three and five-year products available.


It also offers small business lending, and, most recently, Digital Mortgages by Atom – residential mortgages available through intermediaries.


Looking to the future, Atom has plans to offer a full suite of banking product, all of which will be managed via the app.


Is Atom bank safe? Atom is regulated by the FCA and PRA, and is covered by the FSCS.




Tandem is planning to launch in the coming months, and will be accessible online, via an app, and through a UK call centre.


The bank’s aim is to make its name as a provider offering a proactive approach to money management.


The bank describes itself as a “good bank aiming to improve people’s relationship with money through an innovative and customer-centric approach, products and services.” It adds that the name “Tandem” reflects its approach of working together with its customers in partnership to “deliver a bank they want and that best fits their needs.”


Initially, it will offer deposit accounts and credit cards. Later in the year it is planning to add personal loans and current accounts to its stable of products.

Is Tandem bank safe? Tandem is regulated by the PRA and FCA, and is registered under the FSCS.




Starling Bank is another of the “next-generation” banks set to enter the market this year.


The focus is on current accounts, with Starling having built a mobile-only bank which lets customers see their money with real numbers showing the real balance in real time.


The bank says: “When we launch in the first three months of 2017, we will be offering everything the traditional current account can do, plus much more. Our aim is to help customers spend, budget and save, all from their app.”


Is Starling bank safe? Starling is a licensed bank, regulated by the FCA and PRA, and covered by the FSCS.


A spokeswoman for the bank adds: “We also provide chargeback functionality based on invalid card-based transactions, as well as the 15-day guarantee based on invalid direct debits. This helps ensure that customers get the best protection for their payments, while our built-from-scratch technology keeps their money secure.”




Monzo is another bank shunning the traditional high-street model and opting for an online-only approach instead.


Its pledge is a user-friendly, data driven approach to money management – one that solves the problems around your finances.


The focus of Monzo (formerly Mondo) will be around a current account. Once you’ve opened an account, you will get a debit card which connects to an app on your phone. You then get push notifications each time you make a purchase.


Other features of the app include a real-time itemised breakdown of your spending habits, quick mobile money transfers, technology to predict your banking habits, and no foreign exchange fees.


Is Monzo bank safe? A spokesman for Monzo says: “Our beta card isn’t protected by the FSCS – it’s a prepaid card managed by Wirecard. However, our current account, launching in the next few months, will be covered by the FSCS.”



Other challengers

The broadest definition of a challenger bank is one that is smaller than a national brand, and designed to give competition to the UK’s big high-street banks (Barclays, Lloyds, HSBC and RBS /NatWest) through better deals, service and technology.


Large challengers include Clydesdale & Yorkshire Banking Group, Handelsbanken, and Paragon, as well as TSB and Virgin Money.


Smaller fledglings include Aldermore, Close Brothers, Metro Bank, OneSavings Bank, Shawbrook and Secure Trust Bank. 



What is Money Means?

Money Means is a news and information series written by independent financial and consumer journalists and experts*. FSCS launched Money Means in 2016 to help give people clear and useful information about personal finance, to increase their understanding and confidence when dealing with money.



About FSCS

FSCS can compensate customers of UK authorised financial services firms if they have stopped trading. The service is free and is independent. It protects deposits & savings (up to £85k), investment business, home finance, insurance policies and insurance broking.

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