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6 FinTech startups luring customers away from traditional banks

challenger bank

A number of so-called “challenger banks” have emerged in recent years, seeking to truly disrupt the UK financial services landscape. These new firms have begun gaining the trust of customers who are still highly suspicious of traditional institutions since the financial crisis of 2008.

Here’s a quick overview of some of the UK tech companies that have emerged in this space – what they offer and what they have in the pipeline. If you want to know what the difference is between Starling Bank, Monzo, Atom Bank, Revolut, Pockit and Tandem, this is the article for you.

1) Starling Bank

Founded in: London, 2014

Funding: $70m (£54.2m)

Banking licence? Yes

Key features: Mobile-only current accounts, real-time payment notifications, zero fees on spending abroad and overseas ATM withdrawals, Apple Pay support and pre-approved overdrafts with a flat rate of 15% AER.

In the pipeline: A ‘goals’ function so users can set savings targets, Android Pay support, and Starling Marketplace, which will give customers access to other finance-related product providers.

More info: Founded by AIB’s former COO Anne Boden, Starling Bank secured $70m of funding in January 2016 from Harald McPike, the Bahamas-based founder of private investment firm QuantRes.

Seven months later, in early July, the mobile-only challenger bank received its banking licence. It launched consumer current accounts in beta in March 2017 and, in June, revealed it was expanding to Europe having received approval from the Bank of England to operate in Ireland under the EU’s passporting arrangements.

There’s a £300 per-day cap on overseas ATM withdrawals, but no monthly or annual cap.

2) Monzo

Founded in: London, 2015

Funding: £34.69m

Banking licence? Yes

Key features: Pre-paid debit cards, current accounts (currently in beta), real-time payment notifications, zero fees on spending abroad, zero fees on overseas ATM withdrawals.

In the pipeline: Overdraft facilities, international money transfers, ApplePay and Android Pay support and the Monzo Marketplace for financial products such as savings, mortgages, energy providers and insurance.

More info: Monzo, created by Tom Blomfield, Gary Dolman, Paul Rippon, Jonas Huckestein and Jason Bates, started life as ‘Mondo’. Many of the team previously held roles at Starling Bank, but, according to an FT article, “tension” led to their departure.

Monzo was granted a full banking licence in early April 2017 and recently begun the rollout of current accounts.

While users presently benefit from fee-free overseas ATM withdrawals, with a monthly cap of £1,000 and an annual cap of £3,000, a spokesperson told me the firm is planning to implement different pricing and fees in the not-so-distant future.

The firm claims to currently have around 360,000 users with some 150 employees, growing at a rate of around five to 10 people per month.

3) Atom Bank

Founded in: Durham, 2014

Funding: £185m

Banking licence? Yes

Key features: A mobile-only bank offering fixed savings accounts, business loans and mortgages.

In the pipeline: Further loan products, plus business and personal bank accounts.

More info: Founded by Anthony Thompson, who was the founder and former chairman of Metro Bank, Atom received $128m in November 2015 in a round led by BBVA, which was followed by a $102m raise in March 2017. The bank currently employs 316 people, up from 205 this time last year.

Somewhat bizarrely, Atom Bank enlisted the support of musician, entrepreneur and TV personality Will.i.am in April this year. Will took on the role of strategic board adviser to counsel the firm on areas such as culture, philanthropy, technology and future trends.

The bank claims to have 21,000 savings customers and almost 4,000 mortgage customers. Dave McCarthy, chief financial officer at Atom, predicted in July that the bank will break even in the financial year 2018/19. The firm is refusing, however, to give an estimate of when it will launch current accounts.

4) Tandem

Founded in: London, 2013

Funding: £30.1m

Banking licence? Not yet – currently seeking regulatory approval

Key features: The service hasn’t launched yet.

In the pipeline: Current accounts, credit cards, savings accounts and loans plus real-time notifications and alerts when customers could save money by switching service providers.

More info: Once launched, the Tandem app will show users how they spend their money each month. It will also send alerts when bills increase or a payment is received and help reduce bills by finding the consumer better deals.

Tandem was issued a banking licence in November 2015, but this was revoked when House of Fraser pulled £29m of investment from the startup.

The firm recently acquired Harrods Bank and is currently waiting for the Bank of England to issue a new licence.

It received £22m in Series B funding in 2016, followed by £2.1m in equity crowdfunding. In January of this year, House of Fraser invested £35m, but later pulled £29m of this.

5) Revolut

Founded in: London, 2015

Funding: £65m

Banking licence? No, but regulated by FCA with an e-money licence. This means customer funds are not FSCS protected. A spokesperson said the firm is “not ruling out” applying for a banking licence in the future.

Key features: Business and personal accounts, a prepaid MasterCard debit card, free international transfers using the interbank exchange rate, fee-free spending abroad (also at the interbank exchange rate), fee-free overseas ATM withdrawals with a cap of £200 per month.

In the pipeline: Expansion into the US and Canada. An integrated investment platform on which users can invest in stocks and bonds. Travel insurance and phone/device insurance. Cryptocurrency support for litecoin, bitcoin and ethereum.

More info: Founded by ex-Lehman Brothers and Credit Suisse trader Nikolay Storonsky and ex-Deutsche Bank and UBS developer Vlad Yatsenko, Revolut claims to currently have 800,000 users.

Unlike Starling Bank and Monzo, it doesn’t use the MasterCard exchange rate when users make purchases abroad, it uses the lower interbank exchange rate. However, while Starling and Monzo issue free debit cards, Revolut charges £5 per card.

Revolut offers a premium account/card which comes with a higher overseas ATM withdrawal cap of £400, free same-day currency transfers, worldwide medical care and other perks, but there is a £6.99-per-month charge associated with this type of account.

The premium account is one way in which the firm makes money, but it also generates revenue through transaction commission (it earns 1.5% – 2% from MasterCard per transaction), business account fees, and commission on the use of its credit offering, which is operated by Lending Works.

6) Pockit

Founded in: London, 2014

Funding: £10m

Banking licence? No

Key features: Prepaid MasterCard with account number and sortcode, UK and international bank transfers, cashback with selected retailers.

In the pipeline: Overdrafts, insurance products, monthly spending analysis via an inbuilt tracking feature, direct debit functionality and salary-backed loans.

More info: Pockit focuses on the ‘unbanked’ – those who rely on cash and are unable to access a bank account. The firm is keen to state it is a prepaid card provider, not a bank, but its offering looks very much like a current account.

Customers are given a sortcode and account number and can make in-store and online payments for free, as well as receive payments (eg wages) for free. There is, however, a 99p charge for various actions, such as UK ATM withdrawals, and UK and international transfers. There’s also a 99p charge to receive the card in the first place.

A fee of £2.25 is applied to overseas ATM withdrawals and foreign exchange fee of 4%. There is a daily cap of £250 on UK ATM withdrawals.

The firm offers two types of account: a Simple Limits Account and a Full Limit Account. The Simple Limits Account is issued to those whose ID and address can’t be verified straight away and lower account limits apply, for example, Simple Limits Accounts can store a maximum balance of £200 with a maximum daily ATM withdrawal limit of £80.

Users can access their account online or via the Pockit app and get cashback on purchases with certain retailers, for example 4% cashback on purchases at Argos and 7% back at Pizza Express.

The firm, which claims to be approaching 200,000 users, currently has around 50 employees, based across three locations: central London, Croydon and Poland.

Have you tried any of these products? Let us know your experiences in the comments below.