Fintech startups are shaking up the financial technology space. As banking customers increasingly turn to digital solutions, neobanks continue to gain traction. A neobank offers both traditional and non-traditional banking services through mobile apps and/or websites. They operate entirely online, without physical branches, and partner with existing financial institutions to offer financial products which can include checking and savings accounts, overdraft protection, and loans.
With the development of online and mobile banking came the freedom and convenience of being able to manage funds whenever and wherever you want. The rise of online banking set the stage for digital-only entrants to grab market share. In 2023, for example, 12.6 million Brits (24%) have a digital-only bank account; by 2028, this number is expected to rise to 22.6 million (43%). Approximately, 27 percent of Americans use an online-only bank.
These “challenger banks” applied for a banking license to compete with long-established banks, known as “The Big Four” in the UK and US – including Barclays, HSBC, Lloyds Banking Group, and NatWest Group in the UK and JPMorgan Chase, Bank of America, Wells Fargo, and Citibank in the US, respectively.
Whether you call them digital-only, online-only, internet banks, or neobanks, this new kind of bank has become especially popular in the UK. Here’s a look at three of the UK’s most popular neobanks:
Monzo Bank Limited, founded in 2015, is based in London and was one of the UK’s earliest new app-based challenger banks. The app is free to use, and the bank card is free to order, with delivery taking two to seven working days.
With Monzo, you can set up direct debits, make bank transfers for free within the UK, pay in cash at PayPoints (which has a £1 charge), and pay in cheques by sending to Monzo with Freepost. However, there is no interest offered on your main account. Monzo offers a combined UK and EU ATM withdrawal allowance of £250 a month, and after that, there’s a 3% charge.
Using your Monzo card abroad is always free, and all money is exchanged using the MasterCard rate. As mentioned, there is a combined UK and EU ATM withdrawal allowance of £250 per month, and for the rest of the world, you can withdraw £200 a month before the 3% fee kicks in.
Monzo offers spending category tools, monthly summaries, and spare change ‘round-ups’ where your card purchases are rounded to the nearest whole number, and the difference can be placed into your chosen ‘Pocket’. For example, if you spend £3.60, Monzo will round it up to £4.00 and place 40p in your Pocket. You can also create ‘Pots’ to put your money aside to save up for specific goals. No interest is offered on regular Pots, but you can open an interest-paying savings account through one of Monzo’s financial partners, which you can manage in your Monzo app.
Monzo is a fully licensed UK bank, so the Financial Services Compensation Scheme (FSCS) protects individual customer funds of up to £85,000.
- Bill splitting
- Joint accounts
- Energy switching via marketplace partners
- International money transfers via Wise
Revolut, founded in 2015, is a global neobank and financial technology company based in London that offers banking services. A physical card is £4.99, and delivery takes up to nine working days. However, the app is free to use, and you can also set up a virtual card – accessible from your smartphone’s Wallet – for free.
With Revolut, you can make bank transfers for free within the UK, set up direct debits, and make free international money transfers to accounts in the Single Euro Payments Area (SEPA). However, you can’t pay cash or cheques into the account and there is no interest on your main account balance. The first £200 a month is free to withdraw at a UK ATM; afterward, there is a 2% fee and a £1 minimum charge.
You can spend up to £1,000 a month abroad on your card for free, after which a 0.5% fee applies. Like UK withdrawals, you can withdraw £200 at a foreign ATM for free, then there’s a 2% charge.
There are spending category tools, spending summaries, spending limit options, and spare change ‘round-ups’, where your card purchases are rounded to the nearest whole number, like Monzo. Revolut also has a ‘Vaults’ system where you can allocate different funds into different vaults to save up for certain things. Partner banks can provide vaults that pay interest through the Revolut app, but they are not currently available to standard account holders.
Revolut doesn’t have a UK banking license to date, so the FSCS does not protect money in its accounts. However, Revolut safeguards customer money in a separate licensed UK bank account, which means these funds are ring-fenced should Revolut go bankrupt.
- Bill splitting
- Hold multiple currencies
- Pay-per-day medical travel insurance
- Revolut Junior child account option
- ‘Essentials’ section to compare utilities and home services
- Trading platform with options to buy gold, silver, cryptocurrencies or shares
Starling Bank, founded in 2014, provides current and business bank accounts in the UK. The card is free to order, with delivery taking three to five working days.
With Starling, you can set up direct debits, make free bank transfers within the UK, pay in cash at Post Office branches for free, and easily deposit cheques into your account by taking a picture of them on your mobile app. Starling pays interest on your main account balance up to £85,000. You can currently earn 3.25% AER interest.
There is no charge for debit card spending or ATM cash withdrawals ATM anywhere in the world.
You get spending insights and spare change ‘round-ups’ like Monzo and Revolut. You can also create ‘Goals’ where you set money aside to save up for something, but there is no option to set up any interest-paying savings accounts.
Starling is a fully licensed UK bank, meaning the FSCS protects individual customer funds of up to £85,000.
- Bill splitting
- Joint accounts
- Personal loans
- Starling Kite child’s account option
- ‘Connected’ card for an authorized user to make purchases on your behalf
- Insurance, pension, mortgage, and investing options via marketplace partners
With their easy-to-use apps and helpful features, Revolut, Monzo, and Starling are all excellent day-to-day banking options if you want to move to digital-only banking. However, depending on what features you need or how often you go abroad, you may be better off with one or another.
Revolut has significant limits and rates for spending abroad and provides the unique chance to buy and sell various commodities, cryptocurrencies, and shares. However, it doesn’t offer FSCS protection, overdrafts, or cash and cheque deposits.
Monzo doesn’t come with a linked child’s account, but it does come with the ability to deposit cash and cheques and access to its ‘Marketplace’ to check out energy deals.
Finally, Starling is an excellent option as it’s the only one of the three to have fee-free spending and cash withdrawals both in the UK and abroad, as well as interest on your main account, cash and cheque deposits, and FSCS protection.
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