Are Challenger Banks as Safe as High Street Banks for Businesses?

Since the digital banking revolution and the deregulation of the banking sector, we’ve seen the fastest growth of new banks ever. This means businesses have more options when choosing where to open a business bank account. So, should businesses choose a challenger bank or high street bank?

Nic Redfern Published on 03 September 2020. Last updated on 20 January 2021.
Are Challenger Banks as Safe as High Street Banks for Businesses?

What are challenger banks?

The reason for specifying ‘high street banks’ when mentioning traditional banks, is that challenger banks operate mainly digitally and you’re very unlikely to find a challenger bank with a high street presence.

The explosion of challenger banks in the 2010s came after the Open Banking regulations, and some were created after divestment from larger banking groups, such as TSB Bank from Lloyds and Virgin Money from Northern Rock.

Challenger banks differentiate themselves from high street banks by focusing on their technology offering, providing a more thorough mobile banking solution with the opportunity to set up accounts quickly and review spending online or via an app.

Is my money as safe in a challenger bank as a traditional bank?

When it comes to considering banking with a challenger bank for the first time, many are unsure if they can trust a challenger bank like they would an established high street bank with many years of history.

High street banks are often criticised for the way they operate, however they can be trusted to keep your money safe, and to still be in business a number of years in the future.

Challenger banks can be a bit of an unknown quantity in this regard, considering they have a very limited track record to prove success, as many have less than a decade of trading experience.

It is also true that, while the Financial Services Compensation Scheme covers up to £85,000 in losses, not all challenger banks are protected by the scheme, whereas high street banks are.

However, it is worth noting here that challenger banks like Monzo, Starling and N26 are all now fully covered by FSCS to the value of £85,000.

What are the advantages of a challenger bank for businesses?

There are many reasons why a business might choose to open a business bank account with a challenger bank instead of a high street bank, including the ability to review spending and integrate accounting software to keep track of incomings and outgoings.

Open an account quickly

Setting up a business bank account is generally quicker and easier with a challenger bank, with the process sometimes taking only a matter of minutes.

On the flip side, setting up a business bank account with a high street bank can take a number of weeks.

Challenger banks are a couple of steps ahead on the technology front and take advantage of digital tools for identification verification, saving new businesses time and reducing the frustration of a long wait.

No monthly fees

Some challenger banks do not charge a monthly fee to use their business bank account services.

That’s not to say they’re all ‘free’; many challenger banks do offer a premium account for extra benefits, while others charge a monthly fee within the same range that high street banks charge.

It's worth remembering that many free accounts are likely to only offer some of the basic account functions and may have limits on what you can do. So it may depend on the size and scale of your business as to whether this free account is enough or whether you need to upgrade your account.

But if you need a free, basic bank account, you should be able to find one with a challenger bank. Just be careful to look out for timelines on introductory offers. You may be able to access no monthly fees for a certain period after opening your account, but this won’t necessarily last forever.

No fees for sending money abroad

Traditional banks are notorious for charging businesses fees when they send money abroad. But challenger banks have worked to remove this. Many challenger banks will avoid all transaction fees for sending money abroad or making withdrawals overseas.

This is a great advantage for businesses that have partners abroad or who spend a lot of time overseas.

Clever digital money management features

A challenger bank can do pretty much everything your high street bank can do, except they’ll do it digitally.

As well as the regular functionality of a business bank account that you would expect, this focus on digital solutions means challenger bank accounts are often better geared up to link with your accounting software, track invoices and expenses and budget.

Benefit from an innovative bank

For a number of years the innovations in the banking industry have come from challenger banks, who are happy to innovate in order to differentiate themselves from other banks and financial institutions.

Although, high street banks are learning and adjusting to the changing landscape, currently they are not as nimble or capable of effecting change and releasing innovative products and features as challenger banks.

What are the disadvantages of a challenger bank for businesses

Challenger banks aren’t faultless; many businesses still choose to open a business bank account at a high street bank, and there are a few drawbacks to challenger banks’ business provisions which explain why.

No overdrafts

High street banks offer overdraft facilities for business use, whereas some challenger banks do not. Overdrafts are obviously a huge advantage for businesses that want support should they have cash flow problems.

Currently many challenger banks don’t offer overdraft facilities. However, some challengers have started to offer overdrafts with their business accounts, so stay up to date with any changes before you write off challenger banks altogether.

No business loans

When you’re looking to grow your business, securing funding can be a great source of finance to inject back into your business. With a high street business bank account you’ll be able to access loans; however many challenger banks don’t offer business loans as a standard service.

Some challenger banks are beginning to offer business loans, but the available funding options may be more limited than those from a high street bank, at least for now.

Remember, if you apply for a loan with your existing bank, you might get preferential rates and faster access to finance than if you were to apply elsewhere.

What are the advantages of traditional banks for businesses?

Traditional banks have the experience of providing banking services for businesses for hundreds of years, and know what businesses want from banking services.

Traditional banks have a lot of built-up trust from their years of operation, and business customers with traditional banks know they are banking with a reliable organisation.

Overdraft facility

Traditional banks can offer business customers an overdraft facility for when cash flow is tight and employees need to be paid, bills need to be met or your company wants to buy equipment or stock to fuel growth plans.

Most business bank accounts from traditional banks offer overdrafts starting from around £25,000.

Business bank loans

Traditional banks can extend business loans to businesses looking for funding. This is one of the drawbacks of challenger banks — many don’t offer business loans.


Before 2010 when Metro Bank was formed, a new bank had not been opened in the UK for 150 years. That means that traditional banks have had a lot of time to hone their business banking services, and build trust with businesses.

Not only this, they’ve stood the test of time and customers know their money is safe when choosing to bank with them.

What are the disadvantages of traditional banks for businesses?

The digital banking revolution wouldn’t have happened if traditional banks provided a flawless service. So, what are the drawbacks of opting to open a business bank account for your business at a traditional bank?

Lengthy application process

With some traditional banks it can take up to four weeks to open a business bank account. If you have a business up and running, this is a lot of wasted time for a business that needs to deposit earnings, make payments and manage its accounts effectively.

Less tech savvy

Although traditional banks are realising that they’re getting left behind by challenger banks in terms of digital tools, they’re making efforts to catch up, offering new features and facilities like accounting software integrations.

However, they are still some way behind challenger banks who are setting the standard for mobile banking. Challenger banks continue to be best placed to innovate, and may offer the most attractive features for businesses.

Compare business bank accounts

Now you know the advantages and disadvantages of opening high street business bank accounts or challenger business bank accounts, you can compare the deals available on the market to determine which is the best business bank account for your company.

About the author:

Finance Director at NerdWallet UK and business adviser to SME's Nic is spokesperson for small and growing businesses with a strong understanding of the financial needs of business Read more

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