A new generation of banks are ditching branches and call centres and going mobile.

Since UK’s financial regulators relaxed rules for new entrants in 2013, a host of startups have applied for banking licences in order to take on the established lenders.

There is a common theme among many of these newly-created companies. The likes of Mondo, Atom and Starling intend to engage with customers almost entirely through digital channels.

The prospective influx of these app-based challenger banks could spell trouble for the established lenders. A World Economic Forum report this week warned that many are facing their “Uber moment” at the hands of disruptive digitally-focused firms.

Offering services entirely online provides a number of advantages for these challenger banks. They do not need to invest in purchasing and maintaining a costly branch network. Instead they rely on mobile and online channels that more and more customers expect to transact through for current account services. 

In addition, they will not be tied to legacy IT platforms that are complex, costly to run, and prone to falling over. While the big banks are often held back from innovation, agile challengers will be able to move faster to deploy personalised features such as geo-location marked spending, and alerts using real-time data.

It is not the first time the UK banking sector has included banks offering online-only services. The first internet bank, Egg, launched back in 1998, while First Direct, began as a telephone-based lender in 1989 before moving to the web.

However, the proliferation of smartphone and tablet devices in the UK means that the new banks preparing their services could have a much larger impact than their predecessors.  

According to the British Bankers Association research, customers will check current accounts on mobile devices around 895 million times in 2015, compared to 705 million contacts made through branches.

Not that it will be easy to go head to head with ‘big four’ high street lenders. Despite damaged reputations in the wake of the 2008 financial crash, many firms have built up trust over years, and customers are likely to feel more comfortable leaving large amounts of money with long-standing business.

But the good news for customers is that the potential entrance of the firms listed below – which is only likely to grow in the coming months – will offer more competition and ultimately better services and more choice...

Atom

Atom's CEO Mark Mullen

Atom CEO Mark Mullen, pictured

Launched by the founder of Metro Bank, Anthony Thomson, Atom was the first to announce its intentions as a ‘digital-only’ bank last year. Headed up by CEO Mark Mullen – formerly of HSBC and First Direct – Durham-based Atom was finally awarded its full banking licence last month.

The bank aims to bring “pioneering technology” to the UK and Europe to provide a more convenient banking experience, it says. Built on a platform from service provider FIS, this includes developing biometric security and in-app account opening, among other features, promising to be “branch-free, paper-free and stress-free” business.

It had been claimed that Atom had a struck a deal with the Post Office to offer its customers cash deposits, however the bank has played down such suggestions claiming it has a “better plan”.

The bank is said to have raised £25 million from a number of sources, in order to set up its operations. This will be supplemented by a new £75 million fundraising round by the end of the year to provide the necessary capital to launch its services.

Starling

The creation of former AIB chief operating officer Anne Boden, Starling is billed as a “smarter bank” that “doesn’t really look like a bank at all”.

Like Atom, transactions will mainly be conducted through a mobile app, as well as a cash card. Similarly there will be no contact through a call centre.

It promises to use ‘real-time intelligence’ to offer customers insights into spending data for current accounts. For example, this means alerting users about spending habits and warning that certain purchases may be out of their budget.

Personalised services will allow customers to turn off lost bank cards before they lost via the app, as well as automatically saving for bills and trips.

After unveiling the initiative at the end of 2014, Starling is expected to launch next year.

However the creation of the bank has been challenging, with chief technology officer and co-founder Tom Blomfield departing, according to an FT report, and taking three members of senior management staff with him to start a rival bank...

Mondo

Mondo's banking app

After leaving Starling, Blomfield, a co-founder of fintech startup GoCardless, created Mondo along with chief financial officer Gary Dolman and chief risk officer Paul Rippon. 

The bank is now in talks with the Bank of England after applying for a licence earlier this year. It has also received £2 million in funding to get the business up and running, according to reports, and will be seeking further investment to meet capital requirements.

Mondo says it is different as its “entire experience is designed around your smartphone”, claiming that the traditional banks treat mobile banking as an “afterthought”.

Rather than partnering with a service provider to supply its underlying technology, Mondo has built its own bank from scratch, allowing the creation of personalised features.

“This ‘full stack” approach means we can process enormous amounts of data in real time and send you actionable alerts when they matter, not three days later.”

Fidor

Fidor Bank logo

Unlike the other three digital challengers, Fidor has been in existence for a number of years.The branchless Munich lender has been up and running in its native Germany since 2009, and is now planning a move into the UK.

Fidor has focused on being a ‘Web 2.0’ bank with a focus on communities and social networking, allowing customers to swap financial tips, with the bank interacting with customers through social channels such as Facebook, Twitter, LinkedIn, Google+ andYouTube. It also uses its communities to open up peer to peer lending and crowd-funding possibilities.

Fidor has a strong innovative streak. It was also one of the first banks to open its application programming interfaces (APIs) to third parties to integrate new applications. It has continued its focused on cutting-edge technologies in recent years too, partnering with bitcoin exchanges –allowing users to buy and sell the virtual currency instantly - and integrating the Ripple blockchain payments protocol.

It also has ambitions to move into the US. However, its entrance has been delayed, with some reports of difficulties gaining access to payments systems owned by the big banks. 

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