Quick summary: Many young people who are planning on opening their first bank accounts are faced with questions and uncertainties. And the increase in number of mobile-only banks in the market has only added to the options they can consider and consequently, has brought in more questions. This article aims to answer some of the most common questions asked when it comes to these mobile-only banks. This also serves as a guide for people who are deciding between these newer, digital-only banks versus older, more established high street banks.
You’re planning on opening your very first bank account but you’re not sure where to start. Do you go with mobile-only banking which is gaining popularity? Or would it be safer if you choose a traditional high street bank? Your friends are encouraging you to go with an app-based bank but you’re still not sure how they work and if it is the best option for you.
If I go for a digital-only bank, will my money be safe? How different are they from conventional banks that have actual physical branches? What are the benefits? And finally, which one do I choose?
It can be overwhelming when you have a lot of questions and options. Now to help you decide, we will break down the differences for you. Plus, we will talk about the top 5 challenger mobile-only banks and compare them to give you a clear guide as to what each one offers as well as the limitations.
How are mobile-based banks different from conventional banks?
Branchless, online-only banks are changing the game for the banking sector, thanks to technological advancements and evolving needs of banking customers. They have certain features that they offer that reel in customers, more specifically the younger generation.
A mobile-based bank is basically a bank in an app. It is a bank that is literally right at your fingertips as everything is done through their mobile app. And for every transaction, users get instant notifications. They do not have physical branches like high street banks. However, they do provide 24/7 in-app chat support for their customers.
Digital banking works the same way as traditional high street banking. You will get a card, account number, and sort code. And pretty much the same transactions you are able to do in a conventional bank, you can also do with mobile-only banks and depending on the bank, maybe even more. Customers can use their cards outside of the UK. Fees and charges vary depending on the bank.
To sign up, customers would just need to install the app on their mobile phones. Different banks have different requirements though. For example, some require proof of address and some do not.
One common security feature these banks provide their users is the ability to freeze and unfreeze their cards from the app, say they lose their phone or their card.
When is an app-based bank a good choice for you?
In today’s age, people want fast and convenient. We want instant and real time. And mobile-based banking offers exactly these.
The rise in the number of mobile-only challenger banks can be attributed to the fact that people are spending a whole lot of their time online on their phones. Pretty much everyone is on their phones at some point in the day.
An August 2018 article from The Telegraph (https://www.telegraph.co.uk/news/2018/08/01/decade-smartphones-now-spend-entire-day-every-week-online/ ) reports that people are spending an average of 24 hours a week online, with the younger generation aged 15-24 spending an average of four hours a day on their phones. This is most probably why people in this age bracket lean more towards digital-only banks.Basically, mobile-only banking will suit you if:
One downside of having a mobile-only bank account is of course, you depend on internet to be able to access your account. Also, they do not have branches so it can be a concern for people who prefer face to face transactions with an actual person.
So, what do you need to consider when picking out a bank?
You need to consider your finances first. What are most important to you? Also, the bank you choose should suit your needs and your lifestyle. Do you travel a lot? Are you big on budgeting and want to be able to set spending limits? Do you always want to make sure you don’t overspend? Do you want to earn interest on your savings? Are you worried about fees and charges? These are just some of the basic things to put into consideration when deciding on which bank to open an account with.
And of course, security measures. You will want to sign up with a bank that is authorised by the Prudential Regulation Authority (PRA) and protected by the Financial Services Compensation Scheme (FSCS). If a bank is protected by the FSCS, your money up to £85,000 are covered.Some of the other things you can consider are:
What mobile-only banks are out there?
There are a number of digital-only banks you can choose from. We will talk about 5 of the top ones in the market and we will highlight their best features to help you understand and to aid you in making the right decision.
Keep in mind – there is not one best bank for all. It really is dependent on what you need.
N26 is a German challenger bank that launched in the UK in November of 2018. Their claim is ‘All-in-one’ banking and ‘Zero’ hidden fees.
They offer three different plans when you sign up for a current account- N26, N26 Black, and N26 Metal. N26 is their free basic plan, the other two are their premium plans with a monthly charge. Anyone 18 and above can sign up for an account. Customers will get an account number and a sort code similar to a retail high street bank accounts. This will allow you to set direct debits as well as make and receive payments.
It suits people who travel quite a bit as they do not charge fees for foreign currency transactions. But for foreign ATM withdrawals, there is a surcharge of 1.7% of the amount withdrawn. Like ordinary banking, users can also process money transfers. They are teamed up with TransferWise for money transfers and they cover 19 foreign currencies.
N26 let’s their users set spending and withdrawal limits for people who want to closely monitor their expenses. So, if you’re working on keeping a budget, you can categorise your purchases that way you have a clear picture of where your money goes.
For local withdrawals, there is no fee for daily withdrawals up to £500.
One of its advantages over other digital-only banks is that customers can also access their accounts using a laptop or a computer instead of a smartphone.
Another app where you can sign up for a UK current account is Revolut. Customers also have three options – Standard, Premium, and Metal.
This is also an ideal option for frequent travelers and those who study abroad because like N26, they also have zero fees for international spending covering over 150 currencies. They also offer free international money transfers. Unlike N26, they do not charge for foreign ATM withdrawals. For bank transfers, there is a charge of 0.5% for transfers over £5000 per month.
For UK ATM withdrawals, they do have a limit though. Up to £200 per month is free. Anything over that, a fee of 2% will be applied. They do not charge any fee for international money transfers.
Similar to N26, Revolut also has spending analytics where you can categorise the transactions you make.
Monese has been around since 2015. Technically, Monese is not a bank. Unlike other mobile-only banks though, accounts work differently. When customers sign up, they will receive a debit card which works like a pre-paid Mastercard which they will need to topup. Meaning the card is not linked to their bank accounts. They also have a limit of £40,000 as the maximum account balance. Customers can go to any Post Office branch or PayPoint for cash topups – with amount limits depending on where you topup.
Daily cash withdrawal from UK ATMs is £300 and unlike other banks, there is a £1 fee per withdrawal.
One other huge difference with other digital-only banks is when a card is lost or stolen, customers do not have the ability to freeze or unfreeze their cards on their own. They will need to report it through the app then a card replacement will then be sent.
Also, there is a €1 charge per withdrawal from foreign ATMs and a charge 2% for foreign transactions.
One advantage of Monese though over its competitors is that there is no credit check and a fixed UK address is not required – meaning sign up is easy. Another cool feature is when you refer Monese to a friend and invite them to sign up, you will earn £15 once they have deposited money into their accounts.
Starling received its banking licence in 2016. It is pretty popular among those who are big on saving. Aside from the spending categorisation available on the app where customers are able to see where their money is going, there is also a “Goals” tab which basically works like a “digital piggy bank”. Users have to option to create as many “Goals” as they want where they can transfer money in to from their main account.
Starling also lets you earn interest on your current accounts, although lower compared to traditional high street banks. For balances below £2,000, rate is 0.5% while for balances below £85,000, interest is at 0.25%.
The daily withdrawal limit is £300 and they do not charge any fee for ATM withdrawals in the UK and abroad. They also have zero fees for spending abroad. They charge, however, For international money transfers. The rate depends on the receiving country and the amount transferred.
Starling has an overdraft option and users can set their overdraft amount. Customers who have active overdrafts can apply for personal loans ranging from £500 to £5,000.
Unlike Monese, you need to be a UK resident in order to sign up for an account.
Just recently, they have partnered with CreditLadder which is a rent reporting service. Customers who use their Starling account to pay for their rent can link their information with CreditLadder, thus helping increase their credit scores with history of on-time payments.
Monzo Bank Ltd is another digital, app-based bank in the UK with main offices in London. They are fully authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority and the PRA. While they don’t have actual physical branches, they have people working in different parts of the world like Cardiff and Las Vegas in the US. They are fairly new, having received their banking licence in April of 2017.
Monzo is a popular choice for people who want monthly spending reports. The app currently has 12 spending categories to help users keep track of their regular expenses: Transport, Groceries, Eating Out, Cash, Shopping, General, Entertainment, Bills, Holidays, Expenses, Personal Care, and Family. Users also get reminders whenever they go over their budget.
For UK ATM withdrawals, the daily limit is £400. They do not charge anything for withdrawals up to £200 per month. Anything over this amount, they charge 3%. Customers can use their card abroad with zero fees. For saving above £1,000, they pay an interest of 1%
Anyone 16 or older can sign up but they would need to be a UK resident.
Now that you know the basics…
We hope this article has answered some of your questions about mobile-only banking. For your next step, you can begin analysing your needs and the things that are most important to you. As these are just basic information, a more thorough research on these banks would be necessary before making a decision. In-depth articles on these banks are also available on this website.
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