App-based banking – is this the future?

“The future of banking, available today.” That’s the bold message adorning the homepage of newly-formed Atom Bank. ‘Challenger’ banks such as Atom have sprung to life in recent years, thanks in part to the Financial Conduct Authority lowering the amount of capital required to form a new bank, in 2013.

We regularly feature a number of challenger banks in our best-buy savings tables, including Shawbrook, Aldermore and Charter Savings to name but a few, so it’s proven they can compete – on interest rates at least.

So why is Atom Bank different?

Atom has no branches and doesn’t even have a desktop website you can log in to – just an app to download to your smartphone or tablet. It’s the first bank to be granted a full UK regulatory licence with such a set-up.

In August, Atom soft-launched two fixed-savings products to invited users – a one-year fix at 2% AER and a two-year at 2.2% AER. Pre-registrations were open to all but only those invited were able to open an account.

Sadly these headline rates are no longer available, but its new rates, while worse than its old ones, are still table topping.

Top ‘big brand’ rate (AER) Top market rate (AER) Atom Bank (AER)
One-year fix 1% Tesco Bank 1.38% Charter Savings 1.4%
Two-year fix 1.1% Tesco Bank 1.5% Union Bank of India 1.65%

On Thursday last week, Atom finally opened its digital doors to all – though obviously you’ll need an Android or iOS device to open an account.

How is it offering better returns than the bigger banks?

With no branch overheads or ‘outdated’ IT databases to maintain, Atom says it’s able to offer attractive interest rates. It could be seen as another example of cutting out the middleman, and if successful, could see other banks follow suit.

So it pays a bit more than the others… why the fuss?

Put simply, savings rates have been dire for ages. Ever since the Bank of England cut the base rate to a historic low in August, savers have been lucky to earn anything more than 1% in an easy-access account. Fixed savings traditionally give higher returns at the cost of ‘locking away’ your money for a period of time – so if you open one, you’re effectively gambling on easy-access rates not rising heavily in future. The longer the fix, the bigger the ‘risk’.

However, the two fixes from Atom are short, so it could be said that the gamble isn’t all that great. The bigger picture here is observing whether their app-based model will take off. Are users happy to sacrifice branches and traditional internet banking for boosted savings rates? Will users be willing to trust a bank with only one method of access? Only time will tell.

What’s the app like?

There may be a presumption that we’ve become accustomed to layers of security questions and impersonal websites when using online banking. In fairness, however, most big banks have launched apps to supplement their internet banking, albeit with scaled-down functionality.

‘SmartBank’ from Santander is one of them, which offers users a breakdown of spending and allows them to send and receive payments via the app – though, like others, some features are only available via its internet banking service.

But with Atom, this is all turned on its head. Its app has no internet banking service to ‘supplement’, rather it is the only method that users can use to access their accounts. You would therefore imagine the app to be good and even innovative.

Thankfully it is. After downloading the app, it’s quite apparent that Atom have put a lot of effort into making sure the app is a doddle to navigate.

For instance, when opening the app you see your account details in a designated ‘Vault’. You’ll see exactly how much interest you’ll be paid on each product, and by what date – a simple feature, yet one that somehow seems necessary after the first time you use it. The app is also displayed in a futuristic scroll-like way, and the content boxes are easy to navigate, and some of them include informative videos – watchable in the app.

Plus there’s an option to personalise your welcome-screen interface to a coloured layout to suit you – a gimmick, but an interesting one at that.

Aside from the above, perhaps the most interesting feature of the app is the ability to log in with voice-recognition or even a personal’ blink’. Similar to airport-style security, this biometric technology will save you the inconvenience of having to input your internet banking access number on each log-in.

So what does the future hold?

Loans, mortgages and current accounts are in the pipeline for Atom – which it expects to introduce before the end of the year. Other challenger banks are also likely to launch in the coming months, with several in the process of getting their full banking licence. These include Monzo, Tandem and Starling Bank – all of which are app-only.

It is of course possible in future that app-only banks will be scored on app functionality as much as the competitiveness of their products. This all depends on whether users are likely to value ease of use and convenience over switching banks to whoever gives the best deal.

It will be interesting to see how the big banks respond to youthful challengers. One possible and perhaps likely result will be the launch of several re-branded subsidiary banks. One example of this is ‘B’ from Clydesdale Bank, a solely app-based account that launched in May this year. It already offers a current and savings account, though sadly not any rates worth shouting about.

Whatever the future, savers will be hopeful that these new app-based banks could help ignite a ‘challenge’ to the current savings market – if only to stir up existing competition.

What’s there to look out for?

First things first, Atom Bank is covered under the Financial Services Compensation Scheme, meaning your first £75,000 is covered should the bank go bust. While Atom is app-only, it does have a 24/7 dedicated customer service centre in Durham – though we don’t yet know their levels of service.

It’s worth considering that as the bank is app-only, it’s hard to say what options it would have in the event of its app developing problems. Perhaps not too much of an issue for fixed-savings products, but for planned current accounts and loans in future, it will be interesting to see how the bank deals with any software issues.

At the time of writing Atom is still top of the savings tree, but it’s important to consider that interest rates are changing all the time – usually in the downward direction. For the latest best buys, see our Top Savings guide.