Are digital-only banks really the future for millennials?

Iona Bain

This autumn has seen a flurry of activity from so-called “challenger” banks, who are attempting to shake up the financial mainstream and transform the way we manage our money.

The Prudential Regulatory Authority (PRA) relaxed rules in 2013 to allow new banks to challenge the old banking order and inject much-needed competition into the sector. Since then, 15 firms have received the green light. The majority are digital-only brands who are taking advantage of new technology to bypass traditional (and costly) branches in favour of services available purely through smartphones.

These include Tandem, a budgeting & savings app which is currently being tested on 10,000 early adopters. After signing up their existing current account, they will receive tips on how to cut their spending so they can stash cash into a Tandem savings account.

Another entrant to the market – Monzo – is concentrating on developing a current account and payments app within months, having obtained its banking license in August, while Atom Bank launched in October with an app-only service offering some of the best savings accounts out there.

However, these start-ups may have some way to go before they topple Britain’s banking giants. More than 54 million current accounts are shared between the Big Five banks (Barclays, Royal Bank of Scotland, HSBC, Santander and Lloyds), with recent switching statistics showing hardly any meaningful shift towards challenger banks.

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