In the past, people would've been reluctant to switch banks because of long-term contracts and expensive bank fees. However, thanks to the new challengers in the banking industry - like Monzo and Starling Bank - it's now much easier and rewarding than ever before!
In this article, we'll explore whether or not you should swap your current bank account for a challenger bank in 2021.
What are Challenger Banks?
A challenger bank is a bank that uses technology-based online banking with lower fees than the industry average and is very much user-friendly. Because of their decision to use an online approach, they benefit from much lower overhead costs than high street traditional banks.
However, challenger banks do not yet enjoy as much support from customers as currently have to contend with mainstream banks.
One of the reasons for this could be their decision to use technology-based systems, which could be a concern with some customers who are wary of change.
Here are some of the great features that challenger banks customers enjoy:
- Fantastic customer support: many of the top fintech banks offer 24/7 support! Meaning you can get service when you need it
- Spending notifications: Yes, they pioneered instant spending notifications, meaning anytime money leaves your current account, you will be the first to know about it.
- Control everything through an app: Download the bank app on your phone, and away you go! Authorised and regulated: Many of the established challenger banks how to have a banking license (varies by country)
- Easy to save money: From rounding up spare change to budget goals stored in a separate place for you Cool Financial technology - easy to use apps that help you control your finances by helping you see your spending behaviour.
- Free ATM withdrawals abroad: For those who travel a lot, challenger banks are well ahead of traditional banks with their low-cost fee structure.
- Easy to send money to friends and family - with some banks, you don't even need your friend's details. You can just send them a secure payment link.
Traditional vs Digital Banks
With new technology and a new way of approaching banking, challenger banks have established themselves in the banking industry. The majority of digital banks are FSCS protected (UK), which means your amount is protected if your bank goes nit-luck.
When choosing your favourite digital online bank, you should consider some of the same criteria and quality - security, financial management and customer service - at the bank.
Digital banks aren't bound by years of traditions, clunky IT systems and historical re-doing the same, so they have an ability to efficiently and quickly meet the needs of their customers.
In the end, challenger banks are trying to replace traditional banks and become more advanced banking systems than the existing ones. However, challenger banks need to find a way to compete with traditional banks.
Some points to consider:
- Challenger banks are the only challengers in how they do business online.
- Challenger banks have started by differentiating themselves from the competition, but challenger banks still aren't doing much different than traditional ones when it comes to features or accessibility.
- Challenger banks don't have a long history of serving European bank customers, which means challenger banks haven't been tested during major downturns or financial crises.
- Challenger banks compete with traditional ones by having fewer branches and staff than the mainstream banks. So challenger banks aren't as widespread and accessible as other banking services.
Benefits of Switching to a Challenger Bank
As challenger banks are quite new, they can provide cheaper fees, better customer service and allow you to try a digital banking account for free! So what could be better than being able to save money and help the environment?
Some of the benefits include:
- Challenger banks are cheaper than other banks, so you'll be saving money! Think zero currency fees and additional features that are included for free (like spare change round up).
- Challenger banks are easier to use than traditional ones. You can set up most challenger bank accounts in just 5 minutes!
- Convenience: All of your banking information is available to access through your device so you don’t have to leave your home unless you want to deposit cash.
- Access to customer service 24/7 - varies by the bank of course but most challenger banks have 24/7 customer service!
Emotional Benefits:
- Feel like you have a say in your banking decisions: Banks like Monzo have an active community where you can ask questions and give input. Their premium banking plans were designed around user input!
Cons of Switching to a Challenger Bank
With challenger banks, you'll need to trust in technology and rely on the challenger bank's IT systems - something that could potentially be an issue with challenger banks.
Challenger banks are also seen as generally untested in a financial crisis. So if we did have another economic downturn, it would be difficult to know how challenger banks would react.
It’s wise to do research into the challenger bank you wish to switch to before making a full commitment. Some areas to check for:
- Does the respective Challenger bank have a banking license in your country?
- What protection is available over your money if the bank does go under?
- What do other customers say about the bank? A good resource here is Trust Pilot, where you can find reviews from verified customers.
Challenger Banks' growth plans for 2021
Many challenger banks like Monzo have already started collecting millions of pounds of funding from investors, and they're contacting customers left, right and centre. Their heavy focus on customer service and easy to change growth models have made their growth plans easy.
We can expect to see this continued growth in 2021 and beyond.
How do I switch to a challenger bank?
Please go and check out challenger banks' websites such as Starling Bank and Monzo to find more information about them.
Who Should Consider Changing Banks in 2021?
Right now, traditional banks are the best choice for people who like traditional banking features and a brick and mortar contact point.
But will traditional banks stay at the top forever?
In 2021 traditional banks are closing branches across the world, so challenger banks might be a good alternative if you want to keep traditional features but with cheaper fees and better customer service.
But traditional banks like HSBC, Barclays and RBS are trying to implement technology into their traditional banking processes. These traditional banks are merging traditional bank features with online services that traditional challenger banks offer however, they can't compete with the challenger bank customer service experience.
And traditional banks aren't as digital-friendly as they should be - traditional banks have recently taken on some new digital-friendly systems.
Reasons You Should Consider Changing Banks in 2021
Making a decision to change banks is like making a decision to change jobs. It’s not an easy one.
But there are a few reasons where you should consider making the move.
- You are unhappy with your current bank's customer service and want a customer-centric bank that you can contact whenever you want.
- You spend a lot of time travelling and want to be able to benefit from no commission fees.
- You are struggling to budget and want a bank that actively helps you budget with every purchase.
The Challenger Banks That are Most Likely to Survive in 2021:
So traditional banks are working hard to compete with challenger banks. But traditional banks haven't exactly made traditional bank accounts very digital-friendly yet.
The traditional bank still has a long way to go before they can compete with the likes of Starling Bank and Monzo.
If you are looking to switch but are unsure if the fintech bank you fancy is stable, check out the curated list below.
Challenger Banks in the UK
Monzo
Monzo is a digital current account launched in 2015 and is now one of the fastest-growing traditional banks in the world.
Monzo bank offers instant overdrafts, free international money transfers, customizable spending categories and the ability to order a Mastercard debit card.
Many people wonder when it comes to Starling Vs Monzo which is better, the truth is both offer excellent benefits for their customers, Starling has a better free offering but Monzo has an excellent premium service included a metal card offer if you are willing to pay.
Starling Bank
Starling bank is the challenger bank that is the biggest challenger in traditional banking.
The challenger bank created an app that saves you money which offers instant notifications and also does not charge for overseas transactions, there are no overdraft fees, it has a great customer service team, and charges no monthly fee.
If you want traditional features like using a traditional debit card, Starling bank might be a good fit for you.
For those who are worried about stability, you will be pleased to know Starling entered profitability in 2020.
Revolut
Revolut is a financial services company that offers traditional bank features such as current and savings accounts and challenger bank rates. Revolut doesn't charge any fees for foreign transactions or for going over your overdraft limit.
It offers accounts featuring currency exchange, debit cards, virtual cards, Apple Pay, interest-bearing "vaults", commission-free stock trading, crypto, commodities, and other services.
Monese
Monese is a challenger bank and digital current account that was launched in 2015. The challenger bank creates an app that saves you money which traditional features like using traditional debit cards.
If you want traditional features, Monese might be a good bank to change to in 2021.
Challenger Banks in The USA
Chime
Chime was founded by Chris Britt (CEO) and Ryan King (CTO) in 2013 in San Francisco, California as an alternative to traditional banking.
Offering a Fee-free overdraft of up to $200. Get paid up to 2 days early with direct deposit. Build credit history with no interest or annual fee with Credit Builder and features to grow your savings.
Given a valuation of 14.5bn Chime is surely going to be around for years to come.
Final Thoughts on Switching to a Challenger Bank
If you're looking for a bank adamant about keeping up with the latest technology, challenger banks are worth considering.
Many of these institutions offer features such as travel savings and budgeting tools to help keep your finances in check. But if you don't want to commit fully or need an account for when you're travelling abroad, then challenger banks may not be right for you.
The best thing about many of them? You can still use it without committing yourself as part of their main banking service! They are free to open and easy to do so, making them relatively risk-free to try out.
As always, weigh all options before making any major decisions on what type of institution will benefit your needs most.