Challenger banks are relatively small, technology-driven financial institutions that compete or cooperate with traditional and long-established banks. These financial institutions operate without branches and focus on a customer-centric experience using different digital channels.
Difference from traditional banking
Challenger banks are digital natives and usually offer better rates than traditional banks. The power of technological innovations is much higher with Challenger banks, as they run highly versatile mobile banking platforms.
Types of Challenger banks
Embryonic Challengers are banks mainly focusing on mobile apps and partnerships with other influential industry players. Real Challengers are financial institutions that have obtained a banking license during the last five years. Pseudo Challengers are startups or partners of the existing banks that usually rely on both physical and digital channels.
Why are challenger banks important?
Challenger banks have increased customer engagement in the industry by simplifying services and increasing flexibility with entirely digital platforms. Most of them support the latest fintech innovations and technologies, including mobile apps and API-based services. For example, in-depth budgeting tools are one of the real-time features offered by Challenger banks but underdeveloped with traditional banks.
The Future of Challenger Banks
Challenger banks have been very successful in the last few years. The new breed of technology-driven banks could effectively compete with traditional banks by providing a holistic and personalized value proposition. However, there are several challenges. For example, most consumers prefer to use traditional banks to pay for taxes, utility bills and other traditional payments but they stick with Challenger banks to pay for everyday purchases and entertainment. In addition, there are Challenger banks that offer a small selection of financial products and services. Open Banking will enable these technology-driven financial institutions to expand their services and provide different on-demand financial services in one platform.
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