There’s an increasing number of new banks appearing that have dropped the high street branches in favour of smartphone apps. Monzo, Starling and Loot to name but a few. You might see them referred to as digital, mobile-only or app-based banks.
So what’s the difference, and are there any benefits to swapping over from traditional banks to the exciting new app-based variety? Let’s find out.
No Branches, But Better Apps
These digital banks are built from the ground up to put their smartphone app at the centre of all their interactions with you.
You’ll apply for an account, submit all your details, and order your cards all within the app. And the same goes for any services you might want to use later on, such as applying for an overdraft or contacting the support team; it’s all taken care of through the app.
It’s also worth considering who these new banks are aiming their business at. They’re actively seeking out customers like you who are tech savvy, intimately know their way around a smartphone, and prefer communications to be digital and accessed by a swipe of the thumb rather than a phone call or an over-the-counter face-to-face.
So if a major high-street bank doesn’t seem to like your profile as a consumer (as they do often reserve their more appealing services for older, wealthier customers), chances are an app-based bank will be far more accommodating and receptive.
Smartphone notifications can be a total pain, but that’s because they’re usually trivial. Facebook crying for your attention like a two-year-old having a tantrum, or a game that’s panicking because you haven’t completed 50 levels before breakfast.
When it comes to spending money and banking, notifications are a powerful security feature and app-based banks do this far better than any high-street banking app.
When using the likes of Monzo or Starling, your phone buzzes up the details of every transaction as it happens. In the case of a contactless purchase, you’ll likely feel your phone buzz before the card machine has even verified your purchase.
So what’s the benefit of these notifications? Well, consider those contactless payments. How often do you not even get chance to see the amount before your card covers the tiny screen and the guy behind the counter whips the machine away from you? When it pops straight up on your phone a second later, you get to double check you’ve been charged correctly. It also means you don’t need to hang around for a paper receipt.
And if the worst happens and someone else gets their hands on your card, you’re going to know the instant a fraudulent purchase is made so you can get on with fixing it. Which brings us to the next feature set of app-based banks, security.
Security and Management
If your card is ever lost or stolen, you know what you need to do. Phone the bank and get it cancelled, which is a chore in itself and leaves you without a card in the meantime.
Because digital banks are managed entirely on your phone, you can “freeze” (or lock) your card at any time within the app to stop it from being used at all. The moment you notice your card is missing, simply fire up the app and freeze your card to prevent any unauthorised use.
If it turns out that you didn’t actually lose your wallet and you find it in the back of the cutlery drawer or in the washing machine, you haven’t had to cancel anything. Just unlock the card again within the app, and there’s no harm done and no security risks taken.
This is also a good idea if you’re travelling, or a bit conscious of security. Keep your card frozen until you want to use it, and then freeze it again right afterwards. Since your phone is locked with a passcode or fingerprint (it is locked, right?), and the banking app is also locked, you’ve got two layers of extra security protecting your money.
So even if someone has your card, they can't use it without stealing your phone and finding a way to unlock the device and the app.
Pots, Goals and Spaces
All these digital banking apps have a common feature, although each one gives it a different name. For Monzo, it’s pots. In Loot, it’s goals and Starling has spaces. All the same thing though.
These are like having extra little savings accounts within your current account. You can create as many of these as you want for any purpose you want (holidays, new console, rainy day, etc), and if you move money into a “pot” it can no longer be spent using your card. You’d have to move it back out of the pot and into the main account before it can be spent, so it’s nice and safe but remains instantly accessible.
Monzo has some particularly great features at the time of writing (I’m sure the others won’t be far behind) based on its use of pots. These include automatically rounding up every purchase to the nearest pound and dropping the remainder into a pot. You’ll be amazed how much this adds up without you even noticing that you’re saving.
It recently integrated the awesome automation service IFTTT (If This Then That), which lets you perform actions like 1p savings challenges, transferring money out of a pot as a reward when you visit the gym (it uses the phone’s location to know you worked out), or adding money into a pot if you buy a coffee on the way to work instead of making your own (to encourage you to save money when you spend it). Check out Monzo’s increasing number of incredible IFTTT automation functions here.
These digital banks won’t be for everyone. But if you value convenience and innovation over traditional services like cheque books and high street counters, this technological approach could revolutionise the way you handle your finances.