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UK challenger banks and banking apps, complete list

In this photo UK ounds, US dollars and Euro bills with a Revolut's card.

In the past several years after the 2008 recession, the British banking sector changed rapidly. It became a little confusing to navigate through space since many different types of banks are available. Among them are the challenger banks (or neobanks).

What are the challenger banks?

A challenger bank is a smaller bank that is also newer than the traditional banks. Newer means that most of these challenger banks were founded after 2009. Thus, they came after the 2008 global financial crisis. Most of these financial institutions were launched after 2014.

These banks aim to compete with bigger banks like Barclays, HSBC, RBS, and Lloyds. Challenger banks hope to win over clients by providing more flexibility, cheaper deals, and better services.

In general, these types of banks aim to squeeze into the existing market and exploit opportunities that the mainstream banks have long neglected due to the size, older technology systems, and relative market dominance. These retail banks in the United Kingdom specializing in the areas that are underserved by the big banks.

Some challenger banks came as a result of divestment from the larger banking groups, for example, TSB Bank from Lloyds Banking Group. Others came from the wind-down of a failed large bank like the way Virgin Money emerged from Northern Rock.

The challenger banks distinguish themselves from traditional banks using their modern financial technology practices. They provide online-only operations that enable them to avoid costs and complexities encountered by conventional banks. Companies must be fully authorized to accept retail deposits by the UK financial regulator, the Prudential Regulation Authority (PRA), for them to be defined as banks.

History of challenger banks

Before the changes that happened in the regulatory space in the United Kingdom financial sector, it was highly expensive and time-consuming to set up a new bank with a full UK banking license. Those challenges led to a few banks dominating the UK market, the Big Four. This elite group of banks had no competition at all.

When Metro Bank got its license in 2010, it became the first to have been issued by the United Kingdom government in around 100 years. After the 2008 crisis, authorities and regulators decided to open the market up to new banks.

Lengthy consultations followed, and a regulation to allow new banks to join the market formed a part of the Financial Services Act 2012. The Act came into force on April 1, 2013. A summary and assessment of the Act from Harvard Law School can be accessed online.

The PRA, part of the Bank of England, created a New Bank Start-up Unit to help new firms enter the banking market. The Unit is tasked with guiding firms through the whole process. This process entails an expression of interest, the application process, and ‘authorization with restrictions’ if necessary.

Also, the Unit helps in those restrictions being lifted and the new bank being granted a full banking license. The PRA and the Financial Conduct Authority decided to publish a review of the requirements in July 2014.

The complete list of challenger banks operating in the UK

Here are the main challenger banks that operates in the United Kingdom:

Aldermore – The bank was established in 2009. Although it does not appear on the official Bank of England list since it gained its banking license through the purchase of Ruffler Bank in 2009, since then, it has been sold to First Raand of South Africa.

Atom Bank – it was established in 2015, and it offers savings and mortgages since it is entirely app-based.

BFC Bank Limited – it was established in 2015 as a subsidiary of the Bahrain Financing Company.

Bunq – this bank charges a fixed monthly fee for a current digital account.

Cashplus – this bank is excellent for day-to-day banking services and can help build credit.

Chetwood Financial Services – The bank was launched in 2016 with a full license but is not allowed to do any consumer buy-to-let mortgage business.

ClearBank Limited – this bank claims to be the UK’s first new clearing bank in over 250 years. It was launched in 2016.

Curve – this bank is designed to connect accounts through one card and app. As they state: “This is not a card. This is your badass 100 Cards in One.”

Dozens – the challenger bank offers digital current accounts, savings, and investment products.

Metro Bank – after its establishment in 2010, Metro became the first high street bank to launch in the UK in at least 150 years. In 2019, the bank posted losses of £130.8m after an accounting issue after profits of £40.6m in 2018. Due to that loss, the bank has scaled back some of its plans to open new branches from 71 in the next three years to 24.

Monzo/Focus FS Limited – this bank was one of the first app-based banks established in 2016. It is perfect for overseas spending, daily banking services, among many other features. Monzo had around 3.5 million customers by February 2020.

Monese – the bank is perfect for a quick account set up since it does not need any proof of address.

OakNorth – the bank was established in 2015, and it offers business and property loans to SMEs.

Pockit – the challenger bank operates a digital current account and card.

Revolut – this is a biggest UK’s challenger bank that is suitable for overseas spending, daily banking activities, free money transfers between the app users. The app has a smart saving feature as well it enables its users to trade stocks without a commission among other features. The bank has also launched a Revolut for Business product to tackle freelancers and businesses with a global presence.

Shawbrook Bank – since its launch in 2011, the bank is renowned for offering many services, including business finance, savings, personal loans, and property finance.

Starling Bank – it was founded in January 2014 by the former Allied Irish Banks COO, Anne Boden. It is ideal for overseas spending and daily banking activities.

Tandem Bank – Tandem Money Limited purchased Harrods Bank Limited (‘HBL’) in January 2018 and changed the name to Tandem Bank Limited.

Thinkmoney – the digital challenger bank automatically keeps your money for various bills to one side for a monthly fee.

Transferwise – one of the most popular challenger bank that was established to serve the market of individuals who send money overseas.

Virgin Money – Virgin Money UK plc was established in 1995. It is the holding company that owns, manages, and operates Clydesdale Bank plc that, in turn, trades as Clydesdale Bank, Virgin Money, and Yorkshire Bank. The bank was created by the National Australia Bank (NAB) in February 2016. It was then called CYBG plc.

EU Challenger banks’ statistics

The challenger bank arena is growing steadily, with more users coming in and preferring the newer banks over the traditional financial institutions. Statistics show that these banks are thriving in the United Kingdom and taking up a part of the older banks’ market share.

The number of customers using these banks’ services has grown significantly in recent years. Revolut leads the way with around 10 million customers, according to estimates obtained by Finbold. N26 comes a distant second with a 5-million user-base, while Monzo has 3.6 million clients. Monese has two million users, Starling Bank has one million clients, while Tandem serves 800,000 customers.

As the number of clients increases, the market value of these challenge banks also increases. Revolut ranks highest with a market valuation of $5.5 billion. N26 is valued at $3.5 billion, while Monzo comes in third with a market value of $2.6 billion as Atom Bank completes the top-four list with a $1.3 billion valuation.

Over their few years of existence, the challenger banks have managed to offer to fund many of their clients. As of February 2020, Revolut has offered $837 million, and N26 has given $628.8 million. Monzo and Starling Bank are the others who have offered considerable amounts giving $418.86M and 416.67M, respectively.

Pros and cons of challenger banks

The positive side

Just because some of these banks introduce themselves as ‘challenger’ does not mean that they are necessarily better for the consumer. However, the banks in this category come with several advantages.

These banks are seeking new customers meaning that they do not already have a long list of established clients who have had accounts with them for many years or generations. Thus, they are always creative, which means they charge lower fees, are more transparent, and are quicker to set up accounts with them.

Advancement in technology has also impacted the banking world. The challenger banks are techy, which gives them an upper hand over the traditional financial institutions. Big banks are slow in coming up with efficient and user-friendly banking apps where the challenger banks have thrived. The new banks excel in offering exquisite user experience since their systems are developed with more modern tech from scratch.

Challenger banks are smarter than traditional banks. In the case of conventional institutions, they get many letters, queues, and bureaucracy. Opening a new account in a traditional bank is time-consuming. On the other hand, the challenger banks cut down on these processes. They enable users to register online or using their phones in a few minutes. Sometimes they do not ask for proof of address.

Nonetheless, the traditional banks are slowly catching up on that, meaning that more competition results in better services provided for the consumers across the entire market.

The negative side

Although the challenge banks come with many advantages, they also have their shortcomings considering that they are relatively new. It mainly depends on your banking needs and preferences.

A notable disadvantage that comes with the challenger banks is that they do not have a physical presence. Thus, you will need to figure out a lot of things by yourself since there is no available branch where you can consult a staff member.

Most of these challenger banks also tend to specialize in various services. If you go for the big banks, you will get credit cards, current accounts, loan accounts, mortgages, and savings accounts in the same bank. On the flip side, the challenger banks offer a limited number of particular services, although they are slowly expanding their product ranges.

If you mainly rely on cash, the challenger banks are not a good option since they do not have any physical offices or branches. In some cases, their customer service is poor due to digitalization. For example, in Revolut you can only reach a support agent via live in-app chat primarily managed by an AI virtual support agent, that won’t solve much.

The challenger banks are also affected by strict regulatory measures to keep them in line with the financial world to protect the users. The banks need comprehensive insurance cover to ensure that their users’ money is safe even if they go bankrupt.

Issues of frozen accounts also plague these new digital banks. They easily freeze their users’ accounts if they suspect any irregular activity. At times they close the accounts erroneously. Sometimes users may have to wait months before their account is reactivated (does happen with Revolut). Thus, uncertainty affects banks in this category.

Challenger banks FAQ

How do challenger banks operate?

Most of the challenger banks do not have any physical offices. That enables them to save on money and offer better deals. If you bank with the top challenger banks like Revolut, Monzo, or Starling, you can do all your transactions using their mobile apps.

Nevertheless, there are some exceptions. For instance, Metro Bank was launched in 2010 as a high-street challenger. It was dedicated to providing better customer service. It currently operates 66 branches across England, and they open up to 12 hours every business day.

In that context, digital banks are creating new strategies that enable them to establish some physical presence in the UK. For instance, Starling Bank enables clients to deposit cash into their digital accounts through Post Office branches.

How to choose the best challenge bank?

Before settling for any of these banks, you first need to identify your needs and habits. There is never a single bank that has managed to become the best fit for everyone. Thus, you need to start by setting your priorities and think about what you want to get out of your bank account.

After you have identified your needs and preferences, you can then start to compare your options. You need to know what products you are looking for in a bank. Do you need a current account for daily banking activities, a savings account or a loan? Most of the challenger banks specialize in various services and products. Hence, you may need to determine which among them offers the services that you are looking for.

If you use a lot of cash, some of these challenger banks have limits on ATM withdrawals and not most of them allow cash loading. On a brighter note, if you travel abroad frequently, you can find a challenger bank that will enable you to use your card abroad without incurring any foreign exchange fees.

Anyone who wants to save money is advised to check and compare interest rates offered by these banks. They also need to review and determine how the banks allow them to access the money deposited in the accounts. Some of the banks offer attractive annual rates, but they usually state that you cannot get your money back before the product expires.

Once you are aware of all these factors, you can then compare the rates, fees, and products, knowing what your priorities are to enable you to get the best challenger bank to suit your needs and preferences. Check out what the traditional banks have on offer since they are gradually catching up.

Is your money safe with challenger banks?

It always depends on the challenger bank that you go for. First, you need to ensure that the provider that you seek is a fully licensed bank. Hence, a full banking license is a must-have for the bank to be considered credible.

If the bank is fully licensed, your deposits are protected up to £85,000. Thatis the same protection that the high-street banks offer as a stipulation by the Financial Services Compensation Scheme (FSCS).

If the service provider you go for is not a bank, it does not necessarily mean that your money is not safe. Always ensure that the provider is fully regulated by the Financial Conduct Authority (FCA). Most of the challenger banks have an FCA license that allows them to issue electronic money.

Challenger banks are aware that security is a big worry for their clients. Hence, they take great precautions to ensure that all customer data is safe and that all their apps and cards are fully protected.

Nonetheless, if you want a digital-only account, it is always great to be aware in advance of what happens if you lose your card or your phone. Some of the challenger banks enable you to block or cancel the card directly from the app if you lose it.

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Author

Ben Jordan is an experienced author, trader, markets analyst, signals strategist, and funds-manager with a deep knowledge of market cycles and financial indicators.