Why Dismissing Challenger Banks in Today’s Market Would be a Huge Mistake
Breaking into the banking industry is no mean feat. For years, attempting to set up a new bank in the United Kingdom was a nightmare partly because of the expense and trying to secure an operating license. So difficult was it that no new banking licenses had been issued for at least a century when finally things began to change in the last decade. Over in the United States, the situation wasn’t any easier.
The birth of a new dawn
The 2008 global recession and technology advancements helped shake things up. Taking advantage of the easing of bank license registration and digital technologies, UK investors sent in a record number of licensing applications — 29 in 2014, according to the FCA. This was the birth of neo and challenger banks as we know them.
What is it about these modern AI-driven financial firms that make them so attractive? How have these banks managed to change the banking industry? And why would it be a mistake to dismiss them during today’s market?
1. Challenger banks are redefining banking status quo
Within a decade at least 40 U.S. neo and challenger banks have been established and in the UK more than double.
Their entrance has not been without notice as Chris Nichols, Chief Strategy Officer for CenterState Bank highlighted, “When someone like SoFi takes a customer from us, it’s much harder to get them back. This group [of challenger banks] presents more of a long-term existential threat.”
Relying on the power of digital technology, innovation, and data these nouveau banks are giving traditional institutions a run for their money. The status quo is being confronted by the new kids on the block who’ve already made significant headway in redefining retail banking.
2. The future of neo and challenger banks is bright
Neo and challenger banks have barely been around for a decade but already boast a 50.6% market share. In fact, 1 in 4 Millennials and Gen-Z’s in the UK are using challenger banks. Globally, these neo banks have managed to acquire a solid base of 2.6 billion users within a few short years.
What’s more, studies such as those by Juniper Research show that the upward trend isn’t going to slow down anytime soon. The number of worldwide users is expected to exceed 3.6 billion by 2024 — a 54% increase from the current number of clients in 2020. At this pace, the digital bank market is also expected to top $578 billion by 2027.
3. Enjoy affordable remote banking — bank anywhere, anytime
The inherent digital nature of neo and challenger banks provides ease and convenience when it comes to banking. Being able to carry out mobile transactions and transactions at lower rates than traditional brick-and-mortar establishments are just two of the reasons people prefer neo banking.
Additionally, neo banking has proved an invaluable tool for global businesses. People can pay for goods and services instantly no matter where they are on the planet. In a sense, one can bank anywhere, anytime. Challenger banks have disrupted how business is done at an international level and will continue to do so as they develop and improve their financial services.
What does the future hold for challenger banks?
Technology has transformed life as we know it and the financial industry has not been left unscathed. Startups, college students, Gen Zs, indeed anyone looking for a flexible and convenient way to bank would do well to consider these retail banks. The future of challenger banks is quite bright. Neo and challenger banks are here to stay.