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A slew of digital-only banks have exploded onto the market and according to a survey by Finder, approximately 12 million people in the UK have a digital-only bank account. A number set to almost double by 2025. 

Despite their popularity with consumers, especially the under 40s, many of these digital banking startups are facing challenges in this “corona environment”. We are getting daily rumours and articles of furloughs, redundancies and cost-cutting at some of the biggest names; Monzo, Revolut and Starling and while these stories circulate they have raised questions about whether money kept in them is safe.


Why are fintechs different to “legacy” banks?


On the one hand digital banks are way ahead of traditional banks and in a strong position to challenge their dominance, especially now.

Social distancing and isolation means that digital providers, which were built digital-first, and with no need for branches or a physical presence, are well-placed to allow customers to conveniently and safely bank from home, while traditional banks often maintain clunky legacy technology systems delivering a less-than-slick user experience.

But this crisis has also put a magnifying glass over the financial health of these loss-making fintech firms and the average consumer deposit balances have dropped by 25%, from £350 to £260 per user. 

In fact, only 12% of users have fully switched to digital and have their salary paid in and direct debits paid out. So it seems when it comes to our “main money” our bank is still made of bricks and mortar, not bits and bytes.


Are incumbents safer in a crisis?


The short answer is no, not necessarily. 

Legacy banks have much deeper pockets, but all fully licensed banks, whether digital or legacy, have a regulatory obligation to hold significant cash reserves in case of a problem. Also, people who hold money with a UK-authorised bank, building society or credit union are protected under the Financial Services Compensation Scheme (FSCS). 

You can check if your bank is covered here

(Since not all of the big fintechs names are fully FSCS protected digital banks, we highly recommend you check) 


So what is the FSCS? 


The FSCS exists to protect customers of failed financial services firms and is a body independent of the government and financial services industry.

It is funded by levies on Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) authorised firms and it was created to maintain trust in the system – trust is crucial to a well functioning and effective financial system. 

The second priority of the FSCS is to ensure that claims are handled fairly and in a timely manner. Compensation claims are made directly through the FSCS and If you hold money with an FSCS protected service you will automatically be compensated;.

  • up to £85,000 per person 
  • up to £170,000 for joint accounts.




Digital banks may be riskier when all factors are taken into account but money held by them is as safe as money held with a legacy bank (if they have a licence).

While you should always keep an eye on the health of your bank there is little to worry about as long as the FSCS remains in charge!

If you would like to learn more about this subject, check out our Digital Banks learning content (available to Blackbullion users only).