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Top 15 Digital Banks in the UK

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Digital-only Banks

For many years, big banks like Barclays, HSBC, Lloyds, and RBS have dominated the UK’s banking space.

However, there have been many challengers backed by technology such as Artificial Intelligence (AI), Blockchain, the Internet of Things, Machine Learning, and more in the last few years. These digital banks are making a real impression on the continent.

Customers are also comfortable with the benefits they receive from these online financial institutions compared to their traditional counterparts.

The article will review the top 15 digital banks in the UK baking space and some of the frequently asked questions (FAQs) about online and mobile banking.

Top Digital-Only Bank in the UK?

Anna: The business-oriented digital bank targets SMEs. The current account monthly fees depend on your business’s size, and you can create it online in less than 10 minutes. ANNA offers businesses free direct debits, automated invoicing, scheduled payments, 1% cashback on whatever the business spends in addition to extra debit cards for employees. However, users have to open a savings account with another institution, the bank doesn’t offer credit cards or overdraft, and it charges foreign currency fees.

Atom Bank: It was the first online bank to receive a full banking license in the UK. Atom bank specializes in mortgages and savings accounts and doesn’t offer current accounts. The bank gives its customers a higher interest rate on savings accounts compared to its peers. Other services include vigorous biometric security, instant savers, fixed-rate saving accounts, interest rates on savings accounts ranging from 0.15% to 1.40% AER, mortgages, and more. FCA and FSCS regulate this digital-only bank.

Bunq: The Dutch independent bank offers branchless services through an app. The digital-only bank charges a fixed monthly fee in exchange for a couple of useful features such as free ATM withdrawals, joint accounts, and prepaid travel card for customers who travel a lot and needs a more straightforward account. “The bank for the free” set you free from paperwork and all other limitations, thus handing over full control of the online banking experience.

Cashplus: The challenger bank offers an internet-only current account that you manage online or through its app. It provides users with a wide range of fee-paying accounts and second chances to customers with poor credit scores. Other services include ATM withdrawals, overdraft, and direct debits options. By lending customers with bad credit scores the monthly fee and reporting their timely repayment helps them to improve their credit score and history.

Coconut: The bank has developed an app that freelancers and small business owners can use to manage their finances. It’s easy to use because it has clear features and focuses on earnings. Users can estimate their taxes depending on their earnings, generate spending records, and automate their tax returns alerts.

First Direct: The internet-based retail bank launched its first digital banking service in 2000 and mobile phone banking service in 2006. The bank is known for its innovation in financial services, thus offering its users well-established phone and internet banking services. As a result, you can get current and savings accounts, use HSBC’s extensive branch network to deposit or withdraw or use Siri to make payments if you’re an iPhone user.

Koto: The online bank is a new entrant in the UK challenger space. The mobile payment account has no fees for transactions, top-ups, ATM withdrawals, and membership. Its credit line offers transparent fees and competitive rates. It offers credit card limits between £500 and £1,000, while MasterCard has no annual subscription fees, monthly fees, ATM fees, or transaction fees.

Mobile Banking App

Monese: In this digital-only bank, new customers are not required to prove regular income, address, or credit history to open their accounts. As a result, immigrants and students can open a current account with the bank when they arrive in the UK. Users can have current accounts in EUR and GBP at no extra fee, deposit cash into their accounts through Paypoint and Post Office, receive real-time spending notifications, and more. The FCA regulates the online bank.

Monzo: Although this online bank began as a prepaid card, it attained a full banking license in 2017. In 2019, YouGov named Monzo the most recommended brand in the UK. It’s one of the best banks for saving money since it offers tools such as setting budgets, paying bills, and creating saving pots. Other services include direct debits, standing orders real-time notifications, interest on your saving pots, free ATMs withdrawal, overdrafts, paid early salary advance, and spending limits. FCA and FSCS regulate the digital-only bank.

Pockit: Users with a good credit history can get better deals on mortgages, loans, furniture, and mobile phones. Pockit is the best internet-only bank for credit building as its LOQBOX reports your monthly repayments to 3 main Credit Reference Agencies. This is when you pay a 0% APR loan for 12 months for amounts between £20 and £200.

Revolut: The privately held startup was the first digital-only bank in Britain to attain unicorn status. The company is valued at over $1 billion. Its multi-currency account allows its users to hold up to 30 different currencies without incurring any fee, thus making Revolut the best online bank for international payments. They also use the Google exchange rate to help their customers avoid marked-up exchange rates and hefty fees. Additionally, you can buy or exchange cryptocurrencies on this internet-based bank. FCA regulates the digital-only bank.

Starling Bank: The bank offers a well-rounded current account that has earned it the Best Current Account 2021 and the Best British Bank. Starling Bank offers personal, joint (up to 2 people), and business current accounts. Other services include overdrafts, loan facilities, free cash deposits, interest on current accounts, mobile check deposits, real-time notifications, and more. FCA and FSCS also regulate it.

ThinkMoney: The digital-only bank app targets customers with poor credit scores and those struggling to manage their money. Aside from improving money management practices, it helps its users pay their bills on time, thus building their credit history and avoiding late payment charges. Additional features are a contactless debit card, a mobile app, cash deposits at the post offices, and jam-jar banking, where funds for your regular expenses are kept separately in order to help you pay bills on time and within budget.

Virgin Money: The bank offers a free, app-based account. Its current account offers 2.02% AER on £1,000 and below paid monthly. It also offers a free savings account that gives 0.50% AER paid quarterly. It’s very easy to set up an account with Virgin Money.

Zopa Bank: Zopa began as a peer-to-peer lending company but later gained a full banking license and launched Zopa Bank. The digital-only bank offers credit cards and savings accounts to its customers. You will access 5 savings options, investments options ranging 1-5 years, interest rate between 1.05% and 1.30% based on your account, as well as competitive rates for long-term savings options. FCA and FSCS also regulate the bank.

Why Are There Many Online Banks Now?

The number of digital techs exploded in the early 2010s when the New Bank Start-Up Unit of Financial Conduct Authority (FCA) was launched in 2013. The unit encouraged the growth of new internet-based banks.

Further, the PSD2 regulation introduced in 2018 encouraged competition by creating more finance and banking apps. Additionally, millennial customers are looking for mobile-friendly financial products. Collectively, these are some of the factors that contribute to the explosion of online banking institutions and their apps.

Is Banking with Digital-Only Bank Safe?

Each digital-only bank must have a UK banking license. Further, it should display Financial Services Compensation Scheme (FSCS) logo on its financial products, such as savings accounts and current accounts. The regulator compensates customers up to £85,000 of the funds held in such accounts when the bank fails.

What is a Digital Banking App, and is it Safe?

Digital banking apps are mobile banking apps that allow users to bank, save, pay bills and borrow using their mobile phones. Users can also see their balance and transfer funds, make payments and apply for other financial products using their mobile application.

There are digital-banking applications with advanced features such as budgeting tools, spending analysis, and automated updates. These alerts and notifications are real-time.

Financial Conduct Authority (FCA) regulates the financial services industry in the UK while Financial Services Compensation Scheme (FSCS) protects customers’ deposits such as funds in current accounts and savings accounts. Therefore a customer is paid up to £85,000 in the event that the bank fails.

Online banking and mobile banking are secure as long as the digital bank is a member of FSCS. They also provide security features such as passwords and pins. They also apply new technology like fingerprints, speech, and facial recognition.

Real-time notifications after every transaction can quickly help to spot fraudulent activities in your digital account.

Still, a customer has a big role to play, such as not sharing their passcode or saving it in a way other people can’t see or guess it.

Pros of Digital-only Banks

1.    High interest rates

Online-only banks pay higher interest rates on savings, money markets, and CDs accounts than traditional banks. This is caused by lower overhead due to operating on the internet instead of maintaining physical branches.

Additionally, digital-only banks don’t have janitorial staff, branch managers, or tellers to pay. Lack of such expenses motivates the banks to pass the savings to their customers through higher interest rates.

2.    Lower/minimal fees

Internet-based banks don’t charge monthly fees and their other fees are also lower. They don’t have a minimum balance requirement.

It’s also attractive to open an account with an online bank due to low minimum deposits. However, it’s important to pay attention to other online banks fees such as excess withdrawal charges and wire transfers when applying for an online banking account.

3.    Easy and quick to open an account

Everything about digital banks is online and can be done at any time. For instance, you can register your new CD on a Saturday night, which is impossible with a traditional bank where you have to wait for the branch to open.

Still, you don’t have to queue, fill out paperwork or meet with a banker to have new savings or checking account. Instead, you do it based on your own terms.

4.    Easily accessible

You can always access your account as long as you have the internet on your mobile device or computer. Additionally, you can contact customer service 24/7 through the phone, email, chat, and more.

5.    Secure

Internet-only banks are as secure as traditional banks. However, you must ensure that your bank is regulated by Financial Conduct Authority (FCA) and your funds protected by Financial Services Compensation Scheme (FSCS).

You are also required to take additional measures to secure your online banking account, such as installing an up to date anti-virus software and avoiding transacting using public Wi-Fi.

Cons of Digital-only Banks

1.    It has no branches

There is limited in-person help because digital-only banks have no branches. So they offer phone-based customer service instead of face-to-face meetings. Others offer assistance through online and social media chat.

2.    Cumbersome cash deposit process

It’s hard to deposit cash in an online bank. Actually, you have to search for a deposit-taking ATM or deposit it in your traditional bank account and then transfer it to your online account.

Still, you can use your online bank’s mobile app to electronically deposit a money order or deposit cash via retailers if your online bank has partnered with some providers. However, these services are not free, so be prepared to pay a fee for every deposit.

3.    Limited one-stop-shop options

You may not find checking accounts and CD options in some online banks. Most of these banks specialize in savings accounts, so you might have to maintain separate accounts in different institutions.

Tips for Securing Your Digital Account

Online banking is a great innovation that customers have been waiting for. Today a customer can check their account balance, transfer money, pay bills, and do several other things as long as they have a computer or a mobile device and an internet connection. They can do this at the comfort of their home or somewhere else or anytime.

Scammers and cybercriminals are, on the other hand getting smarter and sophisticated. They want to compromise your account in order to get your money out of your bank account into their pockets.

Here is how to protect your online bank account.

Each account should have Its Unique Password: Some people use the same password for different accounts. They find it easy to remember such a password. However, this can cause severe damage in the event that a criminal finds it out. So create unique passwords for each bank account, credit card provider, and building society. Alternatively, you can use fingerprint recognition if you’re using a smartphone instead of logging in to your banking app using a password.

Keep Your Password Secret and Update It Regularly: Make it your habit to change the password every six months and keep them to yourself. Instead of writing it down, create a short, unique but memorable sentence. A phrase is better than a single word. Also, combining numbers, special characters, or symbols, upper and lowercase, can make your password secure.

Be Warry of Phishing Tricks: Cybercriminals use phishing to trick you into disclosing your personal, financial, or security details. They do that by impersonating large organizations or banks via email. Because they want to attract your attention and motivate you to act straight away, the criminals may tell you that your account has been compromised or hacked. Next, they will ask you to click on a link to change your password in order to secure it. The link will take you to a fake site and not the actual bank account. This gives them an excellent opportunity to steal your security details, log in to your account and transfer all the funds.

Install an Anti-virus Software and Update It Regularly: Using a computer or smartphone without an anti-virus is similar to swimming in a river infested with the crocodile. Install the free-to-use programs or pay for anti-virus versions. The security software scans your incoming emails and filters out viruses. Some programs can isolate anti-phishing features attempting to steal your security details. Still, some online banking and credit card websites use two-step authentication or two-factor authorization to secure your transactions.

Avoid Public Wi-Fi: Today, there is free internet in shops, cinemas, superstores, pubs, bars, restaurants, bus stations, and more. This allows you to stay connected as you travel or enjoy a meal or drink. Public Wi-Fi is not the same as your password-protected Wi-Fi at home. So then, avoid logging in to your bank account or app using the public Wi-Fi because criminals who are also logged into the same internet can access your information. If not, use a virtual private network (VPN) if you must use such internet.

Lookout What You Share on Social Media: People broadcast their birthdays, photos, birthplace, residence, the names of their pets, friends, and families, hobbies and pastimes, favorite TV programs, books, films, music, and more. Many people forget that these are the answers to most banking security questions the financial institution uses to identify you. Therefore limit who can see your information or what a casual acquaintance or your friends’ friends can see about you. Further, Play safe and use different information when answering your banking security questions. This will keep your personal and financial information safe and secure.

I'm a passionate full-time blogger. I love writing about startups, how they can access key resources, avoid legal mistakes, respond to questions from angel investors as well as the reality check for startups. Continue reading my articles for more insight.

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