What are app-based banks?

App-based banks are the new kids on the banking block. As the name suggests, they allow you to digitally manage your money through an app on your smartphone.

Unlike traditional high-street banks, app-only banks don’t have any physical branches you can pop into. But you’ll still have access to customer support and advice, usually by live chat or phone.

You can set up an online bank account by providing a few personal details and photo ID.

App-based banks are also sometimes called online banks, digital banks, mobile banks and challenger banks.

What are the advantages of app-based banking

All mobile banking apps are slightly different, but these are some of the ways they could make banking easier:

  • Banking on the go – manage your account and carry out transactions wherever you are, without going into a branch.
  • Spending alerts – get real-time notifications to your phone each time you spend money using your debit card.
  • Budgeting tools – set budgets to control your spending. For example, set a limit on how much you spend on takeaways each month.
  • Fee-free overseas spending – some allow you to spend and withdraw cash abroad without being charged foreign transaction fees.
  • 24/7 customer support – get round-the-clock access to in-app banking support if you have any questions or issues.

What are the disadvantages of app-based banking?

Digital banking may be fast, efficient and packed with features, but there could be a few disadvantages to think about:

  • Technical issues – occasionally, there may be software glitches, but this can also apply to traditional banks.
  • Poor customer rewards – traditional banks might offer better financial rewards, like switching incentives and cashback on bills.
  • Difficult to make deposits – paying in cash or cheques isn’t easy when there’s no branch to pop into. Some app-only banks let you deposit cheques by post, while you can take cash to a post office or PayPoint to deposit. Some allow you to scan a cheque instead, so it’s worth checking what each bank offers.

Are app-based banks safe?

Many people are still nervous about having their money in an app-only bank that doesn’t have a long track record of trustworthiness, but there are measures in place to protect your finances.

App-based banks that are fully licensed, like Monzo and Starling, are protected by the Financial Services Compensation Scheme (FSCS). This ensures your money is protected up to £85,000 if the bank goes bust.

Some other app-only banks are covered by rules introduced by the Financial Conduct Authority (FCA). This means your money is stored separately by a licensed bank that the app company partners with.

Online banking vs app-based banking

Most traditional high-street banks offer a free internet banking service with their current accounts, which you can access via the bank’s website. Some also have their own app that you can download to your smartphone. It gives you the convenience of digital banking alongside traditional bricks and mortar branches of a banking name you know.

Online banking typically lets you:

  • Check your balance.
  • If you have more than one account, manage them all in one place.
  • Transfer money from one account to another.
  • Pay bills.
  • Send money to friends or family.
  • Set up direct debits and standing orders for regular payments like rent or mortgage.

While online banking is a convenient way to manage your current account, it still comes with the typical fees your bank will charge – for example, foreign transactions fees if you use your debit card abroad.

If you make a lot of foreign transactions or frequently go abroad, app-based banking is a no-brainer. They tend to offer the interbank exchange rates without the mark-up fees you usually get with a regular bank account.

Some app-based banks also let you hold accounts in multiple currencies then exchange between them with low or no fees.

What do I need to open an app-based online bank account?

Criteria varies among banks but, in most cases, it only takes about five minutes to open an account.

Typically, you’ll need:

  • to be 18 or over – although some have ‘teen accounts’ for 16 to 17-year-olds
  • a smartphone and internet access
  • photo/screenshot of a valid photo ID – for example, passport or driving licence.

Simply download the app, fill in your personal details and set up a security password and pin. Some apps also ask for a selfie or short video to verify who you are.

Once your account is open, you’ll be able to order a contactless Mastercard or Visa debit card. Some app-based banks even offer ‘virtual’ cards. These work in exactly the same way as a debit card, but they enable you to buy things online without having a physical card in your hand.

Which banks offer app-based online banking?

App-only banks include:

  • Monzo – good budgeting features to help you keep in control of your finances.
  • Monese – open to everyone in the European Economic Area (EEA). You don’t have to be a UK resident.
  • Revolut – built-in budgeting features and spending insights. Send money abroad with no fees (up to £1,000). Hold accounts in multiple currencies. It’s not a UK-registered bank, so no FSCS protection.
  • Starling – award-winning, Best British Bank. Fee-free spending abroad and useful budgeting features and spending insights. Based in UK so you’ll also have FSCS protection. One of the first challenger banks to offer an overdraft facility.

Traditional banks with a good range of app-based banking features include:

  • Barclays – you can add rewards, check your balance, see transactions and manage recurring payments. You can also deposit cheques by taking a photo with your smartphone.
  • Lloyds – has instant spending notifications and lets you qualify for rewards including cinema tickets, movie rentals and magazine subscriptions.

Other traditional banks with app features include:

  • Natwest
  • HSBC – but the bank is just beginning to roll out and test its new Connected Money app to some customers, so expect more from the new app in the coming months
  • TSB
  • RBS
  • Halifax
  • Nationwide
  • Santander

Frequently asked questions

Which is the best banking app?

There’s a host of banking apps to choose from, all offering different things. The best one for you depends which features, like budgeting tools or fee-free spending abroad, are most important to you. Some of the top-rated banking apps currently on the market include Starling Bank, Monzo and Revolut.

How secure is app-based banking?

Most mobile banking apps don’t store your financial details directly on your phone. Instead, they access them from a secure data centre to prevent cyber criminals from hacking into your account. You still need to be vigilant though. Never send your online bank account passwords to anyone and make sure you have antivirus software installed on your phone.

When downloading apps from your app store, always choose the official version. And update them when new security features are issued.

How do I switch to an app-based bank?

If the bank you want to switch to is signed up to the Current Account Switch Service (Cass), the transition should be straightforward and take no more than seven working days. You can even choose a convenient date when you want the switch to take place - but it must be at least seven working days after your new account is opened.

If your new provider isn’t signed up to Cass, you’ll have to switch to it using a manual transfer form. This takes longer and doesn’t offer the same switching guarantees.

Read more on switching bank accounts.

Can you open an app-based bank account with no deposit?

Yes, most app-based current accounts are free to open. The process only takes about five minutes, although you’ll need to wait a few days to receive your debit card by post.

How easy is it to switch to online banking?

Switching to online banking is quick and easy. If you have a traditional bank account, simply contact your bank and ask if they have online banking facilities. When you set up online banking, your bank will typically send you the information you need and registration details via email. If you’re switching to a new bank, they’ll usually let you set up online banking when you open your new account.

How easy is it to switch to app-based banking?

If the app-based bank you’re switching to is signed up to Cass, it should only take about seven working days to move everything over.

Alternatively, you could choose to keep your regular bank account, open up an additional app-based bank account, then move money over when you need to. All you need is your new app-bank account number and sort code.

What do I need to compare online current accounts?

You don’t need anything to compare current account rates and fees with Compare the Market. If you decide to apply for and set up a digital account, you’ll need to download the app from your app store, then provide a few personal details and photo ID.

Rob Silvey

Finances expert

What our expert says

“We’ve got ‘open banking’ to thank for the rise of app-based banking in the UK. It means high-street banks must allow you to share your financial information electronically with third-party apps or other banks. This is a win for consumers, with more choice and innovative products to help you manage your finances better.”

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