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

Should you choose a challenger bank, mainly accessing your money via an app, or opt for a traditional high street bank for your business? We consider the pros and cons of each type of bank, so you can decide which might best suit your needs.

Nic Redfern, Kristina Fox Last updated on 18 March 2022.
Are Challenger Banks as Safe as High Street Banks for Businesses?

If you are thinking about how best to manage your small business’s finances, you may be considering opening a dedicated business bank account. You’ll have to decide whether to go with a high street bank or a challenger bank.

Below, we consider the advantages and disadvantages of both types of banking providers to help you make your decision.

What is the difference between a high street bank and a challenger bank?

After the 2008 financial crisis eroded trust in the UK banking system, challenger banks emerged to create competition within the banking sector. They aim to differ from traditional high street banks in a number of ways.

Perhaps the biggest difference between a high street bank and a challenger bank is where they are located. A high street bank is what it says on the tin – a bank that has physical branches on high streets up and down the UK. However, challenger banks are mainly digital, accessible online or via an app.

At a high street bank, you can visit a branch and talk to a member of staff during standard opening hours and on Saturday mornings. This generally won’t include Sundays or evenings. Traditional banks may also offer both business and personal banking online or via an app.

In contrast, challenger banks may offer round-the-clock assistance, with the newest challenger banks only doing this via an app, with support by phone, chat or email.

Another difference between these two types of bank is that traditional banks, such as Lloyds Bank, HSBC and Barclays, have been around for hundreds of years, while challenger banks are much newer. For example, Metro Bank, considered the first challenger bank, only received its banking licence in 2010, more than 100 years after the last licence was issued.

Is my money safe?

Yes, your money is safe when opening a business account with either a challenger bank or a high street bank. There are rules that protect your deposits with regulated providers.

The Financial Services Compensation Scheme (FSCS) covers deposits of up to £85,000 per eligible person for each UK-registered financial institution. If your bank fails, you will get your money back up to this limit.

High street banks are typically protected by FSCS. Some challenger banks are also covered by FSCS.

Other digital money providers may offer electronic money (e-money) accounts. These are not protected by FSCS but are protected by Financial Conduct Authority (FCA) regulations. Your money is safeguarded and must be kept separate to the provider’s own money or insured against loss.

FSCS protection is automatic; you’ll get your money back without having to make a claim if your bank, building society or credit union fails. It can take longer to recover your funds if they are stored with an e-money provider, and you may not get all of your money back despite FCA safeguarding regulations.

In short, your money is protected so long as you bank with a UK-regulated provider, whether it offers an e-money account or full bank account. Both types must ensure that your money is protected against the provider’s insolvency.

It is worth noting that if you have several accounts with banks that come under the same banking group, you will only be FSCS-protected up to a total of £85,000 across all your accounts.

There are many reasons why you may choose to open a business bank account with a challenger bank instead of a high street bank. Challenger banks can offer a slick, digital-only experience. However, you may see this as a disadvantage if you prefer to do your banking in a branch.

Below, we weigh up the advantages and disadvantages of using a challenger bank for your business banking.

Advantages of challenger banks for businesses

  • Quick set-up – you may be approved in a matter of minutes, so you can use your account straight away and receive your debit card within a few days.
  • No monthly fees – many challenger banks offer business accounts with no monthly fee, though you may be charged per transaction instead. You may be able to upgrade to an account with more features for a monthly fee.
  • Accounting software integration – some challengers allow you to export your banking data to an accounting program.
  • 24/7 support – challenger banks may offer around-the-clock support by phone, email or via their app.
  • Real-time notifications – you can be notified every time you spend or see what your foreign currency transactions will cost you straight away.

Disadvantages of challenger banks for businesses

  • No overdraft facility – challenger banks may not provide overdrafts, though this depends on your provider.
  • Limited access to business loans – certain challenger banks may not be able to offer you a loan, particularly if they are an e-money provider.
  • No in-branch support – challenger banks are generally digital and branchless. You can access support over the phone, via email or an app, but not face to face.
  • No cheques – some challenger banks do not accept cheque deposits and do not offer cheque books to business customers.

High street banks

High street banks can offer a convenient way to manage your finances. You may want to use facilities that traditional banks can provide, such as overdrafts and business loans.

» MORE: How to apply for a business loan

On the other hand, you may find that there isn’t a branch local to you or that you prefer being able to do all of your banking digitally. A challenger bank may offer additional features that better meet your needs.

Below, we explore the pros and cons of high street banks for businesses.

Advantages of high street banks for businesses

  • Overdraft facilities – being able to borrow through your bank account can be important for businesses.
  • Business loans – if you’re wanting to finance a project, traditional banks could offer you a loan.
  • FSCS protection – high street banks are authorised by the Prudential Regulation Authority and have UK banking licences, which means they’re all covered by the FSCS.
  • In-person support – many traditional banks have branches across the UK, so you can do your business banking in person.

Disadvantages of high street banks for businesses

  • Can take longer to open an account – high street banks may take a few days or weeks to open your business account, rather than being able to open it on the same day.
  • More limited support – you may not be able to contact support 24/7, unlike some challenger banks.
  • Branch access – if your bank doesn’t have a branch near you, it could be difficult to go to the bank in person.

Compare business bank accounts

If this guide has helped you work out which type of banking provider suits your needs, you may feel ready to open a business bank account.

NerdWallet compares a range of providers, including high street and challenger banks. Use our comparison tool to help find the best bank account for your business.

» COMPARE: Business bank accounts

About the authors:

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

Kristina is a writer at NerdWallet. A recent graduate trading French for finance, she has experience creating content for student newspaper Cherwell and an edtech company. Read more

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