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App-based banks: advantages and disadvantages

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If you’ve been thinking about switching current accounts, you might have been tempted by one of the challenger banks available in the UK. These app-based banks come with certain advantages and disadvantages, so are worth investigating if you are looking to compare them against a high-street bank.

We’ve put together a guide on the advantages and disadvantages of app-based banks so you can decide for yourself whether a change from your old bank would be a good thing, and how to find the best app-based bank for you.

The Guru always finds it difficult to make a change, especially if it doesn’t involve anything purple or covered in gold embroidery. However, if a change makes good financial sense then he’s all in (though he may request a jewel-encrusted debit card).

What is an app-based bank?

An app-based bank is part of a new wave of smaller challenger banks created in the last few years, who are taking on the established high-street banks. Their tactic has been to centralise all of their banking services in one app, rather than provide any local branches to customers, thereby promoting convenience and accessibility. They include:

  • Monzo
  • Starling
  • N26
  • Revolut
  • Tide
  • Tandem
  • Atom

These app-based banks are known for their continued use and development of financial technology (otherwise known as Fintech) as they offer current accounts, premium accounts and business accounts available to anyone with a smartphone or equivalent device.

Many have also branched out into lending money through overdrafts and loans, making their offering comparable to that of many high-street banks, meaning their popularity has grown rapidly in recent years.

Advantages of an app-based bank

We’ve already touched on a few of the possible advantages of an app-based bank, most notably the ability to access their services on-the-go through an app. However, since you will find that many high-street banks have comparable apps, it’s worth looking at the other advantages too:

  • Convenience – since app-based banks have everything available through an app, or support available online, they’re completely devoted to having a convenient service for their customers. In contrast, high-street banks have been slower to adopt this strategy, meaning that customers will still need to visit their local branch for important changes
  • Notifications – going hand-in-hand with their devotion to convenience, customers can also get real-time notifications to their smartphone about what they have just spent and where they have spent it
  • Easy savings options – app-based banks provide savings options that seem much more seamless than having to set up a standard savings account with a high-street bank. Many even have a ‘round-up’ option where spare change is automatically moved over to a savings pot
  • Free transactions abroad – another clear advantage is the ability to spend money abroad without getting charged extra. Spending with your app-based bank will usually not incur any fees like a standard current account would, so is a good option for those who are frequently travelling for work or leisure
  • Security – instant access to your account through a convenient app also means there is also the possibility of freezing a lost or stolen card very quickly too. Whilst high-street banks will offer a comparable feature, it is usually a lot more seamless through an app-based bank
  • Earning interest or cashback – this doesn’t apply to all app-based banks, but many offer the ability to earn interest or cashback through the use of your current account. Like other advantages, this can then be tracked very easily through the app to see how much you are earning on a monthly basis

Disadvantages of an app-based bank

While there are plenty of advantages of app-based banks, there are a couple of disadvantages, though this is depending on what your priorities are as a customer.

  • Can’t visit a branch – this is the biggest change from traditional high-street banks, as many customers are used to visiting their local branch on a weekly or even daily basis. Due to the setup of an app-based bank, this is simply something that can’t be done, though they still offer options for paying in money at Post Office branches, and withdrawing from ATM cash machines
  • Can’t get face-to-face support – another disadvantage, especially if you would prefer to speak to someone over a serious matter, is that you can’t get any face-to-face support. This is an understandable requirement for any customer, but there is still the option of online chats or telephone support for most challengers
  • Don’t usually offer a cash incentive for switching – if you’re looking to make a complete switch, rather than just open an account, you won’t usually get a cash incentive for switching, which you do receive with many high-street banks. While this is a short-lived bonus, it is still an advantage that traditional banks still hold over challengers
  • Don’t have as many financial products on offer – simply due to high-street banks being much larger and more established than app-based banks, it means that the latter has a much smaller range of financial products on offer

Can I switch to an app-based bank account?

If you’re thinking of switching to an app-based bank from your old current account, it is very straightforward to do using the Current account Switching Service (CASS). Like any other switch, this automatically switches all of your direct debits, standing orders and your full account balance within 7 working days of the original request. Your old account is automatically closed and you can then carry on using your new account as you did previously. Thing to think about with switching include:

  • Check you can transfer your overdraft – always double check with your old provider if you’re able to transfer an overdraft or whether you have to pay it off before the switch
  • Don’t setup anymore direct debits after making a switch request – once you’ve made a request to switch, don’t setup any further direct debits as these will not be transferred across
  • Joint account switching requires both parties to consent – if you want to switch your joint account, then you will need the permission of both parties before you do it

Find out more about CASS here, or read up on switching current accounts here. Alternatively, if you’re ready to start looking for challenger bank current account, start browsing our range using the link below.

Robert Bester - Content Writer