Challenger and mobile banks

What is a challenger bank or mobile bank?

The term challenger bank is used to describe any bank that's looking to challenge the big four in Britain: Barclays, Lloyds Banking Group (which includes Halifax, Lloyds Bank and Bank of Scotland), HSBC and the NatWest Group (which include RBS, NatWest and Ulster Bank).

In this guide we'll be looking at the app and online-based branchless banks that can offer more perks and better customer service.

They also offer real-time payment notifications, meaning you receive an alert every time there is some activity on your account. This not only make it easier to keep track of your spending, but you can also immediately spot if someone's using your account fraudulently.

If you're looking to read about banks such as TSB, Virgin Money or Metro Bank, see our guide to the best banks 2023. 

Starling Bank review

Starling Bank received a banking licence in July 2016, and launched the UK's first app-only current account in March 2017.

The London-based firm built its IT systems from the ground up and has opened more than three million accounts.

Following our latest survey of the public, Starling is a Which? Recommended Provider for current accounts, earning the top customer score.

• Find out more: best and worst banks – as rated by thousands of customers

What does Starling offer?

Starling offers a full personal, joint, and business bank account, as well as childrens' accounts.

It pays interest of 3.25% on balances of up to £85,000. Starling customers can deposit and withdraw cash at any Post Office branch. 

 An overdraft of up to £5,000 is available, charged at 15%, 25% or 35% EAR (Equivalent Annual Rate), dependent on your credit score. All overdrafts are subject to eligibility and affordability.

There are no fees for overseas spendingor cash withdrawals. The app automatically organises your spending by retailer and category (food, travel, entertainment etc) and lets you split bills instantly with other users.

The bank offers an additional 'Connected' debit card, aimed at people in self-isolation or living with disabilities. The card can be topped up by no more than £200 and given to friends and family who are doing shopping for you.

Starling Bank Marketplace allows you to connect your bank account with third party services such as PensionBee (a digital pension provider) and Wealthify (an online investment ISA firm). We explain what you need to know about sharing your data in our open banking guide.

Only the mobile app offers full functionality but Starling launched a basic online banking platform for personal customers in October 2020.

Is my money safe with Starling?

Instant notifications make it easier to notice fraudulent transactions and you can lock your card instantly within the app if it's missing.

Starling has also gone a step further than its rival Monzo, by allowing users to toggle on and off in-store contactless or chip and Pin payments, ATM withdrawals, online payments and mobile wallet payments.

If you lose your phone, Starling says it can block the app on that specific device. You can then use a new phone to download the app and log in to your account.

• Starling Bank is authorised by the Prudential Regulation Authority (PRA) so up to £85,000 of your money is protected by the Financial Services Compensation Scheme (FSCS).

Monzo Bank review

London-based Monzo Bank got the word out through hackathons and asking tech 'influencers' to share its app via word of mouth and Twitter. It surpassed 7.5 million customers in 2023. You can spot them by their distinct 'hot coral' debit cards.

Customers rave about the bank. Monzo achieved a customer score of 82% in our latest banking satisfaction survey, placing third overall.

However, it has not been selected as a Which? Recommended Provider because it has not signed up to the voluntary Authorised Push Payment (APP) Scam Code which launched on 28 May 2019.

What does Monzo offer?

Originally, Monzo offered a contactless prepaid Mastercard linked to an app but all existing users were upgraded to a current account. 

As with Starling, the app lets you easily split bills and track your spending. There are no fees to pay with your card abroador make online transactions in a foreign currency, however, Monzo charges most customers 3% on cash withdrawals over £200 every 30 days in both the UK and European Economic Area (EEA). 

Joint and business accounts are available, or you can pay a monthly fee for additional benefits:

• Monzo Plus: is £5 per month for an increased fee-free cash withdrawal limit (free up to £400 per 30 days) and virtual cards to use online, to protect your card details from scammers.
• Monzo Premium: is £15 a month for phone insurance, worldwide family travel insurance, £600 fee-free cash withdrawals abroad and a white metal debit card. You must be 18-69 to apply. 

At the time of writing, Monzo was paying an interest rate of 4.6% AER on balances up to £100,000 to both Monzo Plus and Monzo Premium customers, though keep your balance within the FSCS limit of £85,000. 

Monzo Investments launched in September 2023, with three funds to choose from offering varying degrees of risk (with the least risky putting around 80% of your money in bonds and 20% in shares and the most risky investing all of your money in shares.

Find out more: How does Monzo's investment platform compare?

Is my money safe with Monzo?

Instant notifications help you respond to unauthorised payments quickly, and you can temporarily freeze your card via the app (if you've lost it) to prevent anyone else from using it.

By default, magstripe ATM withdrawals are disabled to prevent 'skimming' (details can be copied from the black stripe on the back of your card using devices attached to legitimate machines), though it can be temporarily enabled. Almost all UK cash machines use chip and Pin to validate your identity, but in other countries they use the magnetic stripe to authorise withdrawals.

For lost or stolen phones, Monzo has created an online portal for emergency payments and transfers.

• Monzo Bank is authorised by the Prudential Regulation Authority (PRA) so up to £85,000 of your money is protected by the Financial Services Compensation Scheme (FSCS).

Atom Bank review

The Durham-based online bank is co-founded by the former chairman of Metro Bank and the former CEO of First Direct.

For now, it only savings accounts, a digital mortgage broker service and business loans.

What does Atom offer?

Atom offers savings accounts, residential mortgages and business loans.

It offers an instant access account, as well as 1, 2, 3 and 5-year fixed-rate accounts, you can take out a savings account with a term or three and six months. You can also decide if you want to be paid the interest monthly or annually.

Atom also offers mortgages through its broker service, which you can access via its app.

A current account is also on the cards. Once that hits the market, you'll be able to set up direct debits, use an overdraft and have your salary paid into the account.

Is my money safe with Atom?

Money in Atom's instant access account can only be withdrawn to a connected current account, which you nominate when you set up the Atom account.

Once you've paid money into your Atom fixed rate savings account, you can't withdraw it until the end of your product term, except in cases of financial hardship, so it's highly unlikely that anyone could make a fraudulent withdrawal.

It's important that Atom protects your identity, though – and it does this by registering the devices you use (so that it recognises your phone or tablet) and using biometric technology (your voice and face) to secure the app.

• Atom Bank is authorised by the Prudential Regulation Authority (PRA) so up £85,000 of your money is protected by the Financial Services Compensation Scheme (FSCS).

Kroo Bank review

Mobile-only challenger Kroo initially offered a prepaid debit card linked to an app but launched its first current account in December 2022 having secured its banking licence in July 2022. 

Around 21,000 prepaid card customers were moved onto the new current account, although Kroo has said it aims to gain one million customers within the next five years. 

Describing itself as a 'bank with a conscious', Kroo promises to plant two trees for every current account opened through its charity partner, One Tree Planted.

What does Kroo offer?

The Kroo current account is one of the best if you want to earn a decent rate of interest on your balance, paying 4.01% AER on deposits of up to £85,000.

Perks include zero fees on purchases when you use its debit card abroad. It's also waiving foreign ATM fees from 1 April 2023 to 31 October 2023 (thereafter you only pay a 3% fee on overseas cash withdrawals over £200 a month). 

It has a fairly low overdraft APR of 24.9% (most high street banks charge 39.9%), though this is subject to status and by invitation only. 

You can track and categorise your spending and settle up bills with friends on the app.

Is my money safe with Kroo Bank?

As with other digital banks, instant spending notifications help you spot unauthorised transactions and you can freeze your debit card via the app if it's lost or stolen.

• Kroo Bank is authorised by the Prudential Regulation Authority (PRA) so up £85,000 of your money is protected by the Financial Services Compensation Scheme (FSCS).

How safe are e-money firms?

While the likes of Starling and Monzo have UK banking licences, the following fintech firms operate under electronic or e-money licences instead.

This means you don't get direct protection under the Financial Services Compensation Scheme, although your money must be ring-fenced.

The Financial Conduct Authority (FCA) supervises regulated firms to make sure they comply with the regulation and store the funds correctly. In the event of an insolvency, you would be able to claim your funds from this segregated account.

While protections are in place, think carefully about how much of your savings you're willing to hold in e-money accounts as many brands use the same providers to issue their cards and process payments.

• Find out more: the Financial Services Compensation Scheme explained

Revolut review

Set up by a Credit Suisse equity analyst and a former Deutsche bank app developer in July 2015, Revolut is aiming to shake up the travel exchange market.

The firm has amassed nearly eight million customers in the UK. 

What does Revolut offer?

Revolut offers five accounts – at the time of writing this includes Standard (free), Plus (£3.99/month), Premium (£7.99/month), Metal (£14.99/month) and Ultra (£45/month) – all of which come with a prepaid Mastercard that lets you spend abroad in over 150 currencies and exchange money in 30+ currencies in-app:

• Standard restricts you to £1,000 of fee-free exchanges (you pay a fair usage fee of 0.5% above this) and £200/month ATM withdrawals (or five withdrawals in total, whichever comes first).
• Plus offers a few extra perks, chiefly a £3,000 fee-free currency exchange limit and 'everyday protection insurance' which covers cancelled UK event tickets and theft or accidental damage to goods paid for on your Revolut card (up to £1,000).
• Premium, Metal and Ultra have all Plus features and also allow for unlimited currency exchange Monday to Friday, more generous cash withdrawal limits, discounts for international money transfers and global travel insurance. Ultra customers get additional perks such as unlimited airport lounge access, free international transfers and trip or event cancellation insurance. 

You can top up your account by bank transfer, debit or credit card, as well as Apple or Google Pay (although Revolut doesn't accept cheques or cash deposits) and buy currency at the wholesale 'Spot Interbank' exchange rate Monday-Friday (or pay a small markup fee at the weekend). 

At the end of 2020, Revolut launched a web version of its app so that customers can view their transaction history, top up their account, and contact customer support using a laptop or computer.

As with Monzo and Starling, the app offers bill splitting functionality; a spending summary; and real-time notifications of transactions.

Is my money safe with Revolut?

If your card is lost or stolen, you can block the card via in-app support, over the phone, or via the web version of the app.

Revolut users can opt-in to location-based security to prevent fraudulent transactions eg if you and your phone are in Germany and a transaction is attempted in Hong Kong with your card details, it should stop this payment from going through.

You can also enable or disable your physical Revolut card in a single tap if it's lost or stolen. Other features that can be instantly turned on and off in-app include ATM withdrawals, online payments, contactless and magstripe payments.

Revolut operates under an e-money licence in the UK (despite having a Lithuanian banking licence) so your money is not protected by the FSCS, however, your money is held in ring-fenced client accounts with a bank which means your money can't be lent out by Revolut. In the event of an insolvency, you would be able to claim your funds from this segregated account.

Monese review

Monese was founded by Norris Koppel after he struggled to get a bank account as an Estonian immigrant.

The bank is on a mission to remove as many hurdles as possible from setting up a bank account in the UK and gears itself towards foreign nationals, expats, freelancers and those who would otherwise have to apply for a basic bank account.

It reached two million customers across Europe in 2020 and announced that more than 9,000 people are joining Monese everyday.

What does Monese offer?

It provides mobile-only UK and European current accounts, small business accounts, and is available in 31 countries in Europe.

Monese isn't technically a bank so it can't make loans, invest money or provide interest. But, it does let you open a bank account without a UK address, providing you with a sort code and account number so that you can set-up direct debits and make or receive payments.

Different benefits and fees apply depending on the account you choose:

• Simple (no monthly fee): You can withdraw £200/month from any ATM worldwide and spend up to £2,000 in foreign currencies without incurring a fee (a 2% fee applies to both thereafter). International transfers attract a 2% fee and and you pay 0.3% when you top-up your account using a debit card. 
• Classic (£5.95/month): Your ATM allowance jumps to £500/month and you get unlimited spend in foreign currencies. Fees for international transfers start at 0.5% and debit card top-ups are free. 
• Premium (£14.95/month): You can withdraw up to £1,500/month and make unlimited international transfers without paying a fee. Premium customers also get priority customer support.

Is my money safe with Monese?

Real-time notifications are sent to your Monese app when you spend. You can block your card in-app if you notice an unusual transaction or lose your card.

The Monese prepaid debit card is issued by PrePay Technologies Limited which has an e-money licence not a UK banking licence so there is no FSCS protection, however, funds are ring-fenced in a separate account which means your money can't be lent out by Monese. 

If Monese or PrePay Technologies went bust, you would be able to claim your funds from this segregated account and your money is protected against claims made by creditors.