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Is it time to switch to a challenger bank?


When you think of banks, your first thought is probably of household names. However, there is a growing number of challenger banks. The red tape for setting up banks was loosened in 2013 which has allowed many new establishments to enter the market. If you’re thinking of switching banks, you may want to look into these new players.

What is unique about challenger banks?

Challenger banks bring about a new mind-set to the market. They desire a different approach to banking.

Their existence alone means the big boys no longer have the monopoly. Introducing competition into the market should force change across the financial sector. If customers abandon the big banks in favour of startups, the giants will have to reassess their services.

Although some challenger banks may operate more conventionally than others, they are all disrupting a market that can seem untouchable. Ffrees, for example, describe themselves as part of the ‘unbanking revolution’.

What are the benefits of joining a challenger bank?

Every challenger bank is different and you should consider each one individually, as you would with any other bank. Just because they are the alternative does not mean they are necessarily the best option for you. Choosing a bank is a big decision and it’s all about working out which one will suit your personal needs the best.

A few of the things that challenger banks may offer include:

Collaboration with their customers:

An ethos of some challenger banks is to be made ‘by the people, for the people’. This collaborative approach should lead to the banks better understanding their customers’ needs. Another reason why some challenger banks have closer relationships with their account holders is due to how new they are. Feedback is often encouraged as the banks have not yet perfected their methods. Although there may be teething problems along the way, a good bank will be keen to rectify these.

Being part of a bank’s inception can be rewarding. Tandem are currently building a community of co-founders to help them achieve their goal of building “the feel-good bank”. A common goal for many challenger banks is to break down the ‘us and them’ rhetoric. Being involved with early decisions helps challenge this before the bank even launches.

Competitive Offers:

As with any new product, emerging challenger banks can face difficulties from their established competitors. Although they may attract customers due to their dissatisfaction with what else is on offer, they will still need enticing offers to encourage new sign-ups. As some challenger banks are targeting a niche, they may offer perks that suit your own set of needs. Once again, this increase of competition should work in reverse and increase pressure on mainstream banks to improve their own services.

Although you should always choose your bank carefully and not be swayed by gimmicks, some of the challenger banks may offer better rates than conventional banks. Fidor bank’s Smart Account is currently offering 0.3% interest per annum which, although not a huge percent, is an easy to understand offer. It is simply the percent earned on your current account balance. Plus, their interest rises will raise to 0.5% once they achieve more Facebook likes.

Customer Convenience:

One way that challenger banks can disrupt the banking market is by having an increased focus on customer service. When Metro Bank were founded in 2010 before regulations loosened, they were the first new bank to open on the high street for more than 100 years. They broke the monotony of 9 – 5 by opening their branches 7 days a week, including 8am – 8pm on weekdays.

As well as extending traditional opening hours, Metro Bank offer free coin counting machines to help you turn your coppers into notes and also welcome dogs. All of this means you can pop into your bank to deposit some loose change while walking your pooch on a Sunday. Now that it’s becoming easier for more banks to open, you can expect the next high street challenger bank to follow in their footsteps.

As well as this approach in branches, Metro Bank offer 24/7 access to their London contact centre. An increase in telephone opening hours and help queries is also a feature some other challenger banks, such as mobile-only Atom Bank, adopt. This means you can contact at times that are convenient for you. Waiting on hold for the entirety of your lunch break could soon be a thing of the past.


The UK’s largest banks are aiming at the largest markets. However, challenger banks can target smaller audiences and therefore offer a service specifically targeted to your own set of needs. Several appeal directly to the SME sector while others, such as Hampshire Community Bank, are localised. If you can’t find a specialised full service bank for you, look out for partial services.

Coconut is an upcoming bank account tailored for freelancers. This will allow you to track your business expenses and keep a running tax bill, among other tools. Although this may not be a fully-fledged bank, it is an example of how the financial sector is offering consumers more choices so that you can find the services that are right for you.

Are they any risks to joining a challenger bank?

Switch to a challenger bank

As with all banks, your money will be protected by the Financial Services Compensation Scheme (FSCS). The FSCS will protect your money up to £75,000 (or up to £150,000 if held in a joint account) in the event of a bank going bust.

With larger sums, you would need to split this over several banks to ensure you would not lose your capital if your bank was to run into financial difficulty.

What about online-only banks?

With so many of the UK’s largest banks closing down their physical sites, it might seem logical for a challenger bank’s USP to be a more personal experience. However, some newer banks exist exclusively online.

While Metro Bank may be known for improving face-to-face banking, its co-founder Anthony Thomson also established Atom Bank once regulations loosened. Atom Bank is the UK’s first bank that is exclusively available on mobile.

Although going digital may at first seem against what challenger banks stand for, these can benefit consumers. Another mobile bank Monese was named ‘Best Challenger Bank’ at the European Fintech Awards 2016, illustrating that being a virtual bank does not always negatively impact customers’ experiences. Being part of a purely online bank means that everyone has the same experience.

This rectifies the imbalance that happens when some account holders have a local bank and others only have access to limited online services. Online banks could potentially pass their savings on to their customers as they do not have the overheads of physical branches.

Should I switch to a challenger bank?

It’s all about what will be the best for you. Now that you have an overview of what challenger banks offer, you can begin to consider whether this switch will be beneficial for you. Although joining a challenger bank may seem risky, remember that you are protected by the FSCS. Whether you join a challenger bank or not, make sure you are getting the service you deserve from your bank.

About the author

Daniel Lee

Company Director

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