Skip to content
Did you know your browser is out of date?
To get the best experience when using our website we recommend that you upgrade to the latest version of one of these browsers.

Online bank accounts

Our guide to online-only challenger banks

Feeling challenged by challenger banks? We’ve put together this handy guide to help you understand everything you need to know about online-only, app-based banks

By Mehdi Punjwani

Published: 23 April 2021

Woman using mobile phone outside cafe

Ready to compare?

What is an online-only bank?

An online-only bank, sometimes called a challenger bank, digital bank or virtual bank, is one that provides all its banking facilities online and through app platforms on mobile and tablet devices.

Online-only banks have no need for physical branches. Their services are provided using automated processes and real-time updates - offering customer support through in-app chat or by phone.

While many of us still prefer to visit high street banks, the number of branches is steadily decreasing, only increasing the shift to digital-only banks and banking apps.

Online-only banks also tend to provide certain features and benefits to their users that are particularly attractive to millennials and the intuitive ways they save and spend – for example, spending forecasts, alerts and savings pots. Read more on the rise of digital banks here.

How safe are online-only banks?

The safety of online banks can be considered in two main ways – access and authentication, and protection by governing bodies.

The benefit of digital banking is that they are often ahead of the curve when it comes to innovation.

This means they will often offer the most hi-tech methods of in-app authentication, rather than – or as well as – using the traditional PIN. This could be:

  • Facial recognition
  • Fingerprint scanning
  • Voice recognition

Most online banks have a rigorous sign-up process and require two methods of authentication as standard – considered to be the most secure way to protect yourself online.

When it comes to banking bodies, most customers will expect their bank to be approved by the Financial Conduct Authority (FCA) and protected by the Financial Services Compensation Scheme (FSCS), which protects the first £85,000 of your savings. 

This isn’t always the case with challenger banks. Atom, Monzo and Starling are all FCA approved and FSCS protected. Revolut and Curve are FCA approved but not currently covered by the FSCS.

Why use a virtual bank?

Because virtual banks are primarily operated through an app, they claim to give users greater control and clearer visibility over their finances.

Benefits to using an online-only bank may include:

  • Real-time spending notifications
  • 24/7 in-app support
  • Free payments abroad
  • Ability to freeze/unfreeze cards
  • Bill splitting
  • Saving pots/jars
  • Monthly spending reports
  • Future spending projections
  • Partnerships with other financial apps

A digital-only bank may also offer features like instant PIN changes and even the ability to trade cryptocurrency.

Interfaces vary, but each is designed for ease of use with an emphasis on giving clear information.

Digital banks and challenger banks also know they must stay ahead of the game with innovative features to appeal to customers. So, if you choose an online-only bank, it’s likely you’ll be the first to benefit from the latest banking innovations.

Online only providers

What features do each of the digital-only banks have?

Table of online only banks

Is it worth switching my main current account to an online-only bank?

Many people open a digital-only bank account to work alongside their existing accounts, so it’s not necessarily a case of having one or the other.

For example, some people use online-only banks as a budgeting tool alongside their existing bank accounts, transferring a monthly budget and using it separately to keep closer tabs on their spending.

Aside from the app-first approach, digital banking works day-to-day in the same way that you’re probably used to. You have a physical card, with an account number and sort code, so you can spend and request payment in exactly the same way.

You can also make payments, receive your salary and set up standing orders, just like a current account from a traditional bank. It really comes down to what works for you.

What do online-only banks offer beyond current accounts?

All banks are striving to offer the best customer service they can to encourage new customers and retain existing users.

Challenger banks can come out on top through 24/7 round-the-clock support, offering live chat options through an app or even human interaction via a phone line.

Some also try to set themselves apart by marketing zero transaction fees and lower exchange rates when you use their cards abroad.

More intuitive interfaces for the digital age can also be a plus point, although traditional banks are evolving their services all the time too.

What happens if something goes wrong – can I phone someone?

While phone numbers are available, the primary form of communication is 24/7 in-app chat. Response times are typically very prompt.

What can we expect in the future from digital-only banks?

The future looks bright for UK online-only banks, with new features being added regularly.

Monzo already provides business and joint accounts, and merchant discounts through its packaged bank accounts. You can also get itemised receipts to keep even closer tabs on your spending habits.

Starling allows for international money transfers and under-18 accounts.

In many ways, challenger banks are moving more closely in-line with the services of traditional banks.

As we move forward and banks understand more about their customers, we’ll be offered services specifically at the time we might want them – and transactions will become increasingly smooth.

A lot of this is already happening but expect it to continue.

Which digital bank account should I choose?

It’s better not to seek out a traditional bank or a challenger bank, but a bank that provides the type of services that suits your spending and savings habits and your finances.

A good place to start is by comparing current accounts with MoneySuperMarket.

With one quick search you can compare accounts from our leading panel of providers on such aspects as overdraft, customer service, incentive for switching and how good their digital services are. You can then make your decision and click through to apply.

Ready to compare?