Challenger Banks

In an age where the internet dominates our entire society, is it any wonder that customers are turning to convenient and ‘in your pocket’ solutions for their banking.  Money management is an essential part of being a grown up.  Anything that makes it easier and quicker to process payments and keep a track on spending is likely to go down well with tech savvy customers who like to do everything on their mobile phones.

As a small business owner, you may have missed this revolution taking place in the high street.  Challenger banks have seen an exponential growth in customers keen to embrace the simplicity of an app based approach to banking.  As the numbers of Challenger Bank users rise, so too does the industry itself, with several providers now branching into the business sector and offering specialist services for small business owners.


So, What Exactly is a Challenger Bank?

A challenger bank is one that has no branches. Transactions and payment authorisations are processed digitally using app-based technology.  The changes in the banking market-place have been significant, with a new generation of savers and current account holders preferring to do their banking in this way.

Smart phones have facilitated easy to use and convenient ‘in your pocket’ solutions to financial exchanges between friends, payments for goods, and other account transfers.  The ‘digital-only’ approach means that customers can monitor their spending in real time, giving customers a way of keeping better control over their finances.

Many challenger banks will provide users with savings options – making it convenient to move money between their different accounts.  The majority will also offer favourable terms on transactions while abroad.

All of these features make challenger banks appealing to a younger generation who have simply become used to managing their entire lives through their mobile phones.

It is understandable that some small businesses are looking for an alternative and this is where the specialist challenger banks can step in and help.


So, Why Do We Think They Could Be Good For Small Businesses?


Easy Set Up

If you have a conventional business account with one of the major high street banks, then you already know the pain of setting up an account.  For most banks this involves at least two face to face meetings and an enormous amount of time-consuming paperwork.

Challenger banks offer very quick account set up facilities.  Download the app, upload your ID, add a few personal details and that is pretty much it.  With many challenger banks the process is almost instant allowing you to get to business straight away.


Limited Overheads Means Lower Costs and Fees

While it is true that traditional banks offer new business owners ‘free’ banking (for up to 18 months in some cases) the additional costs can soon add up.  You may not be paying monthly fees in the first instance, but you will still face expensive transaction fees for certain kinds of payments – particularly those involving currency exchange and things like BACS transfers.  Many new business owners can be shocked to find that banks will charge money for depositing a cheque or cash into a branch.

Challenger banks typically offer no or low monthly fees.   They are also upfront with costs so you can clearly see how and when any fees have been charged.

With real-time transaction monitoring and spend/income analysis tools as standard, challenger banks allow business owners to know exactly where they are with their finances.  International transaction fees are much lower with no additional fees or charges for transferring to or from overseas accounts.


HMRC Compliance

Traditionally small business owners have to trawl through statements and receipts when tax returns are due, sifting through eligible and ineligible transactions and working out what spending is legitimate and what isn’t.

Challenger banks are more useful than traditional banks when it comes to filing your tax returns.  The app-based approach allows you to ‘file as you go’ so that when your need them, your eligible transactions are all in one place and easily found.

They offer business owners the opportunity to seamlessly link with business and accountancy software and are already geared up to deal with HMRCs digital services.  It would seem that challenger banks have stolen a march on traditional banks in ensuring that the software is compatible with the Government’s systems.


Opening Hours and Accessibility

High street banks still tend to have inconvenient opening hours, leaving business owners with the inconvenience and general hassle of having to work around them – sometimes closing up early just to get to the bank before they shut their doors.  Cash deposits can be made through the local Post Office, which are often based in local convenience stores and open longer hours than most conventional bank branches.

In terms of support and guidance, you may find that advisors are not available straight away, and you will rarely see the same person twice.  Challenger banks will offer 24 hour support through the app and online, so there is always an advisor on hand to help with any problems.  In many cases business owners can contact their own ‘personal’ advisors allocated to them directly via email.


Are Challenger Banks Safe?

This is not always a clear cut issue and you would be wise to check directly with your provider.  Some are registered banks and like them, come under the Financial Services Compensation Scheme protecting deposits of up to £85,000.  Others operate under an ‘electronic money licence’ mandate requiring them to hold your cash ring-fenced elsewhere so should the bank go bust your money should, in principle, be safe.

A word of warning however, the ring-fenced money is not automatically covered under FCFS guidelines should the holding bank go bust, and cases will be considered on an individual basis.



On a final note, it is interesting to see several of the major banks starting to mirror the services of the challenger banks by operating their own similar app based transaction services.  Many economists anticipate takeovers and mergers involving the major players in the next few years.

Choosing a bank to use for your business should not be a decision taken in isolation. Consideration needs to be given to things like how well it integrates with your accounting software amongst other things. If you want a chat with us about the best options for your particular situation then why not have a chat with us – you can get in touch on 01473 744 700 or email us on