What are challenger banks doing differently?

Sep 25, 2020 | Fintech Friday

We have all heard mention of challenger banks – the likes of Tide, Monzo or Starling, but what are they doing that’s different? And are they really changing the game?

Gone are the days of businesses paying in cash and cheques each week to a cashier behind a Perspex screen. The continuing evolvement of transaction methods has created a requirement for banks which are equally as innovative in technology: the challenger bank.

It is no coincidence that the rise of the challenger bank began so soon after a huge UK financial crisis, in a bid to challenge the ‘Big Five’ traditional banking institutions that had previously dominated the UK markets.

Challenger banks are disrupting the traditional banking platforms, with inventive approaches to customer experiences in this ever-increasing digital society.

What is driving the rise of the challenger bank?

The development of the smartphone and apps has, without a doubt, been the major driving force of the challenger banks. We now live in a society of instant demand, with Amazon, Netflix and others at your fingertips.

Challenger banks aim to replicate this instant demand with user-friendly app interfaces, showing real-time data with ease. Simultaneously, they are creating meaningful associations with each account holder, offering extensive blogs, podcasts and webinars online for everything business-related – from guidance on writing business plans to advice on EU business travel.

The majority of challenger banks strive to create a community of users online, with high levels of engagement from their advisors on issues and queries.

Another key foundation of many challenger banks has been to offer full transparency of fees incurred as an account holder and you will find that many of the banks always have a full list of transaction fees posted on their website for viewing. Their application of technology enables them to forgo the overheads that traditional banks are happy to pay; a saving that is passed on to the consumer. As a result, many offer ‘new customer’ incentives when signing up for an account, such as transfer fees being waived for a set timeframe.

Fintech and the challenger banks

Challenger banks view themselves as digital pioneers in the banking world. Although a feature developed by a challenger bank will, in time, be replicated in some form by one of the larger financial institutions, challenger banks are much more nimble and are able to adapt and execute with speed

Below are three examples of how challenger banks are currently using fintech to the advantage of their customers:

  • Sign-up directly in app – No more arranging a meeting with a banking advisor to exchange paperwork. Challenger banks use facial recognition software to establish a match between your ID and a current photograph in order to verify your identity for an account. This system has become so time-efficient that many challenger banks boast about how quickly they can turn an application into an account. In the last year, 53% of new Tide members opened their account within 10 minutes.
  • In-app management – No more endless hold music with customer services. Given the nature of challenger banks, their apps have been designed to be the entire Business Hub. Within the app you can do everything from adjusting account limits to reordering a lost card.
  • Receipt capture – No more keeping a shoebox full of receipts for your year-end, or spending your Saturday mornings reconciling your travel expenses. Challenger banks aim to streamline this experience with Receipt Capturing – when you pay for a business expense on your card, take a picture of the receipt and add this to the payment in-app. This will then carry everything through to your accounting system automatically.

Are there limitations to challenger banks?

Yes – but it really depends what you want out of your relationship with your bank. The fundamental advantage of a traditional bank is the ability to visit a branch and speak to an advisor in-person, which can aid the association and communication of both parties greatly.

The traditional banks also tend to be larger institutions, allowing internal loaning facilities to account holders with shorter applications. Often challenger banks do not have a loaning facility themselves, although some have partnered with an external company to offer this service.

Some challenger banks are also limited in their ability to make and receive EU and international payments. The lack of an IBAN number is a large restriction for any companies looking to trade outside of the UK, as the only solution to this is to use a third-party software for the payment and incur a greater charge.

How can we help?

If you are thinking of moving away from your traditional high street branch for more flexibility, then our advice is to do your research or, better still, speak to the digital advisory team at Harold Sharp. We work with multiple challenger banks and will gladly make a recommendation based on your particular business need.

By way of example, Harold Sharp’s partnership with Tide can offer you:

  • No fee for card payments
  • 20p for each transfer in and out of the accounts (waived for the first 12 months)
  • Free transfers between Tide accounts
  • £1 for each ATM withdrawal
  • Quick setup of account (53% set-up in 10 minutes)
  • Agent read-only access (to allow your accountant to view transactions and download statements)
  • Integration with Xero, Quickbooks and Freeagent
  • Ability to import receipts to ‘tag’ to bank transactions in-app

Other banks that we work with, such as Monzo or Starling, offer similar benefits. For more information, and to discuss your particular circumstance to see which challenger bank might best suit your requirements, contact our digital advisory team on fintech@haroldsharp.co.uk or 0161 905 1616.