In January 2018, it was revealed that online banking had overtaken visiting branches and that the proportion of transactions done in branches had fallen from 48% to 34% since 2016.
Online banking is offered by most banks so that you can access your account on the internet from your laptop or computer through the bank’s website. But, in response to this online trend, there are many companies that are developing banking products which suit the smartphone era.
Mostly, these are from mainstream banks but these developments have also spawned new ‘app-based banks’ which offer traditional banking services such as current and saving accounts, mortgages and credit cards. The only difference is that these banks solely exist as an app on your smartphone or tablet.
Some describe these app-based banks as ‘challenger banks’ due to the fact they are seen to be challenging traditional banking structures and services. It is certainly an industry which is seeing rapid growth:
What do they offer?
Firstly, they all offer an app – a programme that runs on your smartphone. Once you have downloaded the app you get access to different services:
- Monzo, Revolut and Starling all do personal current accounts.
- Revolut and Starling also do business current accounts.
- Monzo and Starling are protected by FSCS whilst Revolut has a ring-fenced account at Lloyds Bank.
- Revolut also does loans and travel & phone insurance. Starling also does travel debit cards
Secondly, they all offer analysis of your spending and they help people track money spent in real time. The Monzo app, for example, tells you how much money you can spend each month; notifies you when bills increase or are due to be paid; and even helps to reduce your bills by suggesting cheaper alternatives.
Thirdly, they offer transparency. Mostly this is around being clear about how they operate, what they offer and how their product works. Until recently, some of the companies in this market offered customers free overseas cash withdrawals.
However, due to the popularity of this service many of the companies faced high costs per customer. Monzo responded by asking its users how to solve the issue and customers voted to limit the amount withdrawn overseas per month.
Fourthly, it is about community. By getting user feedback on the way the app works, companies can “develop products that consumers want”. Monzo says:
“For too long, banking has been obtuse, complex and opaque. We want to change that and build a bank with everyone, for everyone. Our amazing community of users suggests features, tests the app and gives us constant feedback so we can build something we all love.”
What are the concerns?
The main concern is the protection of your financial information and money.
With regards to the protection of money, three out of the four companies listed in this report have the full £85,000 Financial Services Compensation Scheme (FSCS) protection. This means should anything happen to your bank you are protected up to £85,000.
Revolut does not appear to be protected by the FSCS. Instead money deposited with it is placed into a special ‘ring-fenced’ account at Lloyds Bank. If Revolut was to go bankrupt, money in this ring-fenced account would be protected.
However, if Lloyds collapses, consumer information website Money Saving Expert warns “Your money may NOT be protected. This is because it’s not counted as a deposit, in the way that cash in a savings account would be, and so it’s not as clear cut.”
With regards to the security of your data, they all offer similar security settings to those you get with traditional banking apps such as using passwords or passcodes. Atom also uses biometric security measures (using your voice or face to access your account). Starling and Monzo offer security measures such as Touch ID/Fingerprint scan.
What about ethics?
The advantage of these new banks is they don’t currently come with quite the same long-established ethical issues that are prevalent in the financial sector
Nevertheless, they are all backed by individual investors and venture capitalists who may hold investments across a wide range of other industries.
No company had any information or policies about the environmental impacts of its operations. In particular it is disappointing that none of the companies mention the use of data centres which require large amounts of energy.
A report in the Guardian in December 2017 stated that “Data centre capacity is rocketing in Europe and Asia with London, Frankfurt, Paris and Amsterdam expected to add nearly 200 MW of consumption in 2017, or the power equivalent of a medium-size power station”. Although this was obviously not just down to the growth in app-based banking, this might be an area that the community of customers might want to ask for further information on.