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.

Why should I use 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 – 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 downsides to 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, while some banking apps can be overly-complicated to use.
  • 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 digital banks don’t have these facilities at all.

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, such as Monzo and Starling, are protected by the Financial Services Compensation Scheme. 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.

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.

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.

Anelda Knoesen

From the Money team

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.”

Why use Compare the Market?

We compare current accounts from leading digital providers, including Starling and Monzo Compare current accounts in under 1 minute** 93.8% of users would recommend Compare the Market to friends or family*** 

**On average it can take less than 1 minute to complete a banking quote through Compare the Market based on data in November 2020.

***For the period 1st September to 30th November 2020, 12,477 people responded to the recommend question. 11,706 responded with a score of 6 or above, therefore 93.8% are likely to recommend.

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