Challenger Bank Vs Traditional Banks: Which is better?

Challenger vs traditional banks WIS Accountancy
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The business bank account is a place where businesses store, receive and spend money. It is an important aspect of the business as it will be used on a daily basis – so a bank that requires minimal management is essential, as you got to focus on running your business.

A lot of our clients generally tend to ask us which bank they should go for when setting up their businesses – to simplify your decision making – we have detailed down the advantages and disadvantages between one of the big banks (HSBC, Santander, Metro, Natwest, Lloyds, Barclays etc) and valiant challenger banks (Tide, Cashplus, Revolut, Starling etc).

What is a Challenger Bank?

These are new self-sufficient banks that are set out to challenge conventional banking style. These banks operate digitally and is highly unlikely that you would see a branch with these banks. The growth in FINTECH and de-regulations such as Open banking in the industry had greatly helped such small banks to thrive in very short period of time.

Advantages of a Challenger Bank

We have listed a few benefits, of joining a challenger bank below.

Setting up an Account – Extremely Fast!

Setting up a bank account has never been easier – some of the challenger banks even open a bank account within 10 minutes – yes, it’s that fast. There are still traditional banks that take up to 4 weeks to set-up a business account.  Challenger banks understand the account opening process and use Digital tools such as electronic ID and address verification and paperless on boarding to make a good customer experience.

Everything your traditional bank does – Plus More!

That’s right – challenger banks does everything the traditional bank does such as paying psychical cash*, making online payments, check your balance on the go, and of course linking with your accounting software.

Additionally, these services would be cheaper than most traditional banks, they also have a good currency exchange rates and helpful reminders.

*Certain challenger banks still on the process of setting up cash and deposits via various channels.

Tech-savvy – The Digital Era!

Challenger banks are known for their edge cutting technology they bring to their consumers, The Big Four Banks are developing such technology, however they will take longer before it gets rolled out for consumers. 

Be first to benefit from the innovation

With traditional banks we have a tendency to feel the banks to be stable, but also at the same time to feel stagnant. With the current rise in Fintech – challenger banks will be at the forefront of the developments and meaning that you will be able to take advantage of this.

Ideal for Small businesses, Freelancers and Contractors

The Challenger banks offer additional features such as Invoice creation, Budgeting, Data Sharing with your accountant – these are great little additions to Small businesses, Freelancers and Contractors.

So, what are the disadvantages of Challenger Banks?

The major concern that any business owner will have with Challenger bank is – What if the bank becomes insolvent?  Big high street banks and some Challenger banks (Starling, Monzo)  are covered by the Financial Services Compensation Scheme (FSCS), that means you will be covered up to £85,000.

Some challenger banks do not have full Banking license so they are not covered by FSCS. These banks have different licensing arrangement with FCA. They guarantee the amount equivalent to what’s on client’s account is held in safeguarding accounts with main banks so in an event of an insolvency it could be recovered.

Businesses who have multiple product with high street banks might not prefer challenger banks.

Certain businesses would prefer “Tried and Tested”- Which makes sense! If you have a great relationship with your bank and your bank provides good interest rates, then it’s best to stick with your current bank.

The important thing to remember is that there is no right way to manage business’s funds and its bank affairs. This blog is written to provide you with a wider range of choice for your businesses.

Thinking of joining a Challenger Bank?

If you are thinking of joining a Challenger Bank (Tide, Cashplus, Revolut) – We have you covered, we have partnered with these banks to get you some exclusive offers by using our referral codes! For more information, do check our website

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WIS Accountancy has been helping contractors from their accounting needs to mortgages, insurances, pensions, and umbrella structures. If you are interested in any of our services, please do contact us on 0203 0111 898 or you can visit our website for more information.

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