Business

Why are Brits turning to online-only banks?

For years, large, conventional banks held all the aces when it comes to citizens’ finances in the UK. HSBC, Lloyds Bank, Natwest and Barclays are collectively known as the ‘big four’ and together they’ve dominated the banking industry.

That is, at least, until recently. These ginormous institutions have come under threat from online-only banks. The most popular online-only banks include:

Monzo
Starling
Revolut
Chase
Kroo

These digital-native startups have disrupted banking in a way that seemed unthinkable. But how have they done this? And why are so many people being drawn to this new era of banking?

3 reasons why Brits are turning to online-only banks

Better app/UX

One thing that younger customers like about app-based banks is their usability. Onboarding flows are more often than not seamless and quick. As an online-only bank, customers don’t need to worry about visiting a physical branch or filling in paperwork, and digital verification methods are designed to offer an obstacle-free experience.

Digital banks are also often ahead of the curve when it comes to features that they offer to their customers. The emergence of perks such as roundups allows users to round transactions up with the spare change going into a savings pot.

In terms of UI, interfaces are generally considered superior in the world of digital banks. Users can customise their dashboards with most online banks to see what they determine to be of the highest priority.

Higher interest

Online-only banks don’t have the cost of managing physical locations. These lower overheads are returned to the customer in the shape of higher interest rates and this is one of the biggest draws to digital banks.

If you’re banking with a traditional bank, you can expect to receive around 3% interest on your current account, although this can be as low as 1.5% depending on who you bank with. This raises to above 4% for most savings accounts with the big-name banks.

In comparison, Kroo, a UK-based digital bank, pays 4.35% interest on current accounts. Customers of Starling can earn 3.25%, increasing to 4.5% interest on their savings.

Spending abroad

Another area where online-only banks are outperforming traditional banks is spending abroad. When it comes to withdrawing cash or paying for purchases abroad, traditional banks have often charged customers for the privilege. But this isn’t the case with online banks, with many charging zero fees for using cards abroad. Those that do charge a fee usually offer a generous limit before fees kick into action.

Monzo allows their customers to use their debit or credit card abroad without worrying about hidden costs or transaction fees. They also allow people to withdraw up to £200 every 30 days before their 3% charge comes into play.

Contrast this with brick-and-mortar banks, Barclays charges a 2.99% non-sterling transaction fee, the same as Lloyds and slightly higher than Natwest’s 2.75% fee.

While these factors may make it seem like a clear win for this new era of banks, your best option will depend on your needs and preferred account type. It’s also worth pointing out the rising danger of scams that are associated with digital banks. Revolut scams in particular are becoming increasingly common; you should consider researching Revolut scam refunds if you’ve been targeted.