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What Do I Need to Know About the Challenger Banks?

For years, the banking industry in the UK has been dominated by the big four banking groups: Lloyds Banking Group (which includes Lloyds Bank, Halifax and Bank of Scotland), HSBC, Barclays and RBS (which includes Ulster Bank and Natwest).

However, the market has changed a lot over the last few years. Challenger banks have come onto the scene, bringing modern technology with them to shake up the banking industry.

What is a challenger bank?

The term “challenger bank” is used to describe any bank that challenges the big four banks in Britain. They’re typically newer and smaller banks that offer customers a completely different experience than found in a local branch.

Challenger banks excel when it comes to mobile apps, with many offering online-only or app-only ways to manage finances. This gives customers a unique experience which is great for those who prefer a simple, modern way to handle their cash.

Who are the challenger banks?

The challenger banks include big names like Starling, Monzo and Revolut, with a growing list striving to offer customers more choice.

These are online banking or app-only banks that can be managed entirely from a mobile device. Most of them offer a range of different accounts to choose from; Starling offers personal, joint and business accounts, for instance.

What are the differences between challenger banks and traditional banking?

Traditional banks have a reputation for being slow to change and bureaucratic at times, though they have come a long way in the past few years, with the adoption of mobile apps and online banking.

For challenger banks, this is their bread and butter. These newer banks tend to focus on user experience, modern technology, and low fees when it comes to transfers and business banking. The downside is that many of them don’t offer interest on current account balances or switching bonuses like the big four often do.

Another thing to look for is whether the bank offers Financial Services Compensation Scheme (FSCS) protection for customers’ money. FSCS is an independent service set up by parliament in order to protect customers in the event of a financial firm failing. Many established challenger banks are FSCS registered these days, but it never hurts to be cautious, and check for FSCS protection.

Why are people moving to online banking?

Online banking is the future for those who don’t want to have to visit branches all the time. With so many local branches being closed down, finding one is getting more difficult these days anyway. With challenger banks, this method of banking is a thing of the past.

Challenger banks offer features such as instant notifications of new transactions to help keep track of spending. They’re created with digital banking in mind, and it shows. Some also offer integrations with other applications to make life easier, such as our Pandle Bank Feeds feature, for instance.

Though the traditional banks have certainly caught up with the tech, or not far behind, they’re still spending resources on a physical high-street presence too. This often translates into less favourable interest rates for customers.

Many challenger banks let users set up a new account from a smartphone, so there’s no need to visit a branch and provide identification. Some will even allow you to set up an account without a permanent address which makes them the perfect option for those who are on the move.

The sheer convenience of online digital banking is tempting to many. Users can handle all of their accounts from one smartphone, which is certainly useful for businesses.

Traditional banks have their pros and are the favourite among those looking for a trusted name, a physical branch and access to credit cards or loans. For some businesses, having a physical branch they can easily visit to pay in cash is essential. But for many of us, this isn’t needed and it’s easy enough to manage everything from an app.

Learn more about our cloud accounting software, and how Pandle’s features integrate with banking for a more straightforward bookkeeping experience.


Elizabeth Hughes

An SEO Copywriter and Content Creator. After more than ten years of enjoying myself by turning difficult subjects into elegant, simple language, I still can't believe I get paid for this.