If you’ve recently been in the market for a new current or savings accounts, you may have noticed that the traditional high-street bank accounts have been joined by a new wave of app-based accounts.
It’s no secret that mobile banking has grown exponentially over the last 5 years. For many, if a bank doesn’t offer a mobile banking app as parts of its service, it’s a straight-up deal breaker.
With this in mind, some of the visionaries within the financial field have spotted an opportunity. Queue app-based banking.
What is app-based banking?
As you’d expect, app-based banking is simply a way to bank using a mobile app. Providers of these apps do not have any physical locations but instead base all of their infrastructure on the app.
Most companies offering app-based banking do offer in-app support in the form of instant messenger or chat-bots.
The major benefit of app-based banking
One of the biggest benefits to these apps over traditional banking methods, is their budgeting and spend-tracking features. Many of these apps will have integrated features to help keep your finances in check.
Some will use push notifications to notify you of what you’ve spent or saved. Many also give you an insight into your spending habits by grouping purchases per store. Whilst this feature will be enough to make most coffee drinkers cringe, it will make budgeting much, much simpler!
In addition, these apps can help to automate savings. Not only that, but they can calculate how much you can afford to save (based on recent spending) and automatically deposits this amount into a separate savings account either weekly or monthly.
Are they safe?
One of the biggest question marks surrounding these apps is their security. UK-regulated banks have full Financial Services Compensation Scheme (FSCS) protection – but do these apps offer the same level of financial protection?
In short, some do, and some don’t. Instead, some will have an electronic money licence. This licence essentially dictates that they must hold your cash in an account that is ring-fenced from their operating cash.
This means that if the app-based bank goes bust, your money would be protected as it’s held in a completely separate account.
Prior to opening an app-based account, we would recommend investigating that company’s stance of consumer protection.
Is this the future of banking?
There’s no doubt that app-based banking trumps high-street banking when it comes to automating savings and budgeting. But is this enough to make them the future of banking?
Possibly not. See, whilst these apps are revolutionary in many of their features, it’s easy to forget that consumers still value traditional qualities of a current account. We’re talking about switching bonuses, 0% overdrafts, high interest rates, fee-free overseas spending and cashback rewards.
Currently, most app-based banks are sparse of these traditional features which will be enough to put many off. What’s more, not everyone will be completely at home with the idea of managing their money through their phone. Some still value going in-store and talking with a human face-to-face about their money.
There’s no doubt that as these apps develop, they will grow in popularity. But it’s unlikely that the traditional high-street bank will be going anywhere in the near future.