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Digital banks vs. high-street banks – how do they compare?

Banking has evolved quite a bit since the days of heading down to your local high-street bank branch to open an account. High-street banks were a one stop shop for all your personal and business banking needs, and had the convenience of proximity and a fairly complete offer.

Fast forward to 1997, the year the Royal Bank of Scotland launched their online banking service (Finextra). This was the first step towards banking digitalisation in the UK, and the initial building block that would change the landscape of banking solutions in the UK for good, leading to high-street banks facing new competition and a need to evolve or go extinct. According to Which?, nearly 5,000 branches have closed since 2015, with one of the main reasons being banking digitalisation.

What are high-street banks?

'High-street bank' is the name given to traditional brick and mortar banks in the UK. Usually located down the high street, or the main commercial street of a town or small city, high-street banks provide banking services to individual people as well as to businesses. At the risk of being stuck in the past, high-street banking has evolved to incorporate digital banking solutions.

With 80% of Brits using digital banking solutions like bank apps in 2020, high-street banks have dug deep to come up with a hybrid solution that marries the traditional proximity of a high-street bank and the familiarity of a fixed point of contact, with the expected convenience of online banking tools (the continuous closure of a number of bank branches is clearly negatively impacting this model and the so-called benefits of high-street banks).

What is a digital bank?

As all high-street banks offer digital banking solutions, they can be considered 'digital'. But there are digital-only banks out there with no physical presence, which offer a purely digital experience through apps and web browsers. 

These digital banks in the UK are usually called digital banks, challenger banks or neobanks, and are growing in popularity. Some of the more popular digital banks in the UK for personal banking needs include Monzo and Starling Bank. It’s hard to say who the best digital bank is for personal current accounts, but the more popular names offer stability and already serve millions of customers across the UK and Europe.

What if the best digital banks in the UK were not banks?

As the banking landscape changes, new names appear that were previously unheard of. We’ve covered challenger banks and neobanks, which are basically newly established banks that do not offer a physical presence. But what about e-money solutions? 

E-money accounts offer digital banking solutions for both individuals and businesses, but they are not a registered bank. In an article written for Forbes, they said that “By 2030, banks will be invisible, connected, insights-driven and purposeful” - a bill that e-money accounts definitely fit.

High-street bank pros and cons

Whether as a business or an individual, high-street banks appeal with their wide range of banking solutions and their many decades of presence and experience in the banking marketplace. Some still maintain reputations as the best high-street banks in the country, but one thing is certain: the main negatives are time and money

Between bank holidays and bankers' hours, brick and mortar banks are known for taking their time when it comes to making your money available to you or resolving an issue through their usually infamous and outsourced customer service. All of the aforementioned issues come with higher fees and a billing model which charges you for anything and everything.

Major cons aside, banking with a high-street bank has a number of pros that digital banks and e-money accounts cannot always offer (or they can, but with some caveats):

  • You have the option to go to a physical high-street bank branch and deal with a bank representative face-to-face

  • High-street banks offer more products such as savings accounts and loans, along with investment management advice

  • Simplicity of cash deposits

  • What is considered a safer banking environment, even though neobanks and other digital banking solutions offer the same levels of protection as brick and mortar banks

  • For business accounts, high-street banks can offer tailored packages including payment terminals or merchant accounts

  • Again for business banking needs, cash-heavy businesses can rely on a larger network of cash deposit points

Digital banks - a modern alternative

Over a quarter of Brits have an account with a digital bank, some 14 million people. That number alone shows the challenge that high-street banks are facing, and their problems aren’t getting any easier. The number of Brits using a digital-only banking solution increased threefold from 2019 to 2022, from 9% to 27%.

Why? Because digital banks have figured out what’s important to individuals and businesses who are looking at their banking options. Consumers want (and need) convenience, ease-of-use, and immediate availability of their money to do with as they please. Businesses need to be able to seamlessly track payments and spending in a digital environment that they can rely on, not to mention customer service that is switched on and reactive

By focusing on the things that matter, and not having to invest copious amounts of funding into brick and mortar or expensive bank staff, digital banks and e-money companies have built powerful apps that allow you to handle all your banking needs from a smartphone in an extremely secure environment, all whilst saving time and money. Because yes, banking digitalisation has also led to cheaper banking fees.

High-street banking vs digital banking solutions - which is safer?

As both high-street banks and digital banking solutions such as digital-only challenger banks and fintech companies offering e-money solutions both offer online banking services and apps, there should not be any differences in safety. In fact, tech-focused companies with strong in-house development teams are likely to figure on the higher-end as far as app and transaction security goes, especially when we know that banks often turn to outsourced solutions or are running on archaic technology stacks.

For example, choosing a digital business current account with SumUp provides you with all of the industry standards in terms of protection. Pair this digital business account with a SumUp card reader such as the highly portable SumUp Air and you've got the best protection available from the moment the customer's money leaves their card. You can find out more about industry leading security standards on SumUp's help page.

From an end-user perspective, using a digital banking solution puts you in control. Through feature-rich mobile banking apps, you'll have two-factor authentication (2FA), requiring secret codes or biometrics to log in, confirm operations or make payments with your card or payment app (such as Apple Pay or Google Pay depending on your smartphone preference). Although digital banks, e-money solutions and high-street banks offer these apps, the latter usually lack functionality, such as the convenient option to block or unblock your card, or change your payment limits from the app.

Digital banking solutions for new and growing businesses

Big businesses turn to big, specialised banks for their banking needs. Consumers make the choice between brick and mortar or digital-only banking. 

But what about small business banking solutions?

Sole traders and small businesses need flexibility, scalability, and all the functionality they can find without paying through the roof. Just because you’re a startup or self-employed getting your feet off the ground, doesn’t mean you don’t need top-tier customer service, hardware you can rely on and a digital banking solution that works for you. 

Enter specialised solutions such as SumUp, designing an ecosystem to accompany small business and sole traders during their journey to success. Where high-street banks usually charge upfront fees, subscription fees, 12 month sign-up periods, and transaction fees on everything, SumUp’s business account is free. Other digital banking solutions such as challenger banks usually have multiple tiered offers at different price points with different restrictions on number of transactions or available functionality. SumUp has a single offer - a free online current account for all small businesses and sole traders.

A free and simple way to benefit from banking digitalisation

If you're a small business or a sole trader looking for a business account with strong digital functionality, or you're still not convinced by going digital-only and want to give it a try, then an account such as the SumUp business account is for you. With its 100% digital signup, no paperwork and being free to open, you can have a digital-only business account ready to go in minutes.

Benefits of the SumUp Business Account:

  • Fast setup with a UK account number and sort code ready in minutes

  • No setup fee and no monthly fee

  • Unlimited free bank transfers across the UK

  • Near-instant payments in the UK, meaning you can send and receive money faster than before

  • No minimum balance requirements

  • Free, contactless Mastercard 

Compared to the industry standard, you'll be saving on bank transfers (which almost always have a fee attached when it comes to both high-street and digital banks), as well as on opening fees and monthly fees. Near-instant payments is a standard that we want to see across the industry. It's your money and you should have it available straight away, not within 3 to 5 business days.

The digital signup process can be completed in a few steps, from the comfort of your home, office, or home-office, requiring only a smartphone or computer/laptop:

Step 1: Fill in some details about your business

Step 2: Complete a short ID verification process 

Step 3: Your account is open and ready for you to top up your balance or start accepting payments via bank transfer or payment links

Step 4: You'll receive your business Mastercard in the post, but in the meantime you can set up Apple Pay or Google Pay to make card payments

Step 5: If you need a payment terminal, you can purchase one of SumUp's industry leading devices and benefit from next-day payments into your business account, 265 days a year

Open a free account

SumUp Team