Banking upstarts: from challengers to pace-setters

Last updated: 07 June 2023

Banking upstarts, or ‘Challenger Banks’ have enjoyed remarkable growth over the past 10 years. In fact, research shows that since 2014 Europe-based challengers Atom Bank, Tandem, Monzo, Starling Bank, Revolut and N26 have collectively attracted over $6B in funding and amassed more than 37 million customers.

The impact of these digital-first banks has been so significant that many of these early movers are no longer thought of as ‘challengers’. Instead, they have become known for setting the pace of innovation in the financial services sector. In this blog, we’ll look at the reasons upstarts are so popular and the lessons traditional banks can learn from them.

What banking upstarts have got right

Newer and smaller banks are faster and lighter than the traditional players, which means they can launch innovative digital and mobile-first services more quickly and more cost-effectively.

From Netflix to Deliveroo, we’ve all become accustomed to easy-to-use, personalised services – and we expect the same customer-centric services from our banks. Newer financial service providers have been able to deliver on this by launching products that meet modern consumer demands. For example, Monzo has made it easier for consumers to budget by setting aside ‘pots’ of money, while Revolut has delivered new services for travellers and those making international payments.

In a relatively small space of time, we’ve gone from visiting physical banking branches, to managing all our money from an intuitive mobile app. Digital-first banks saw an opportunity to transform the way customers engage with financial services, and they continue to innovate to meet our every need – from tracking our spending, to sending money without bank details, to accessing loans, to investing in the stock market.

How traditional banks can keep up

Traditional banks have more barriers in place to start innovating and launching new products. Legacy systems, complex organisational structures, and regulatory requirements can add complexity when it comes to introducing innovation.

But they have one major advantage: consumer trust. According to YouGov research carried out in 2020, less than a fifth (17%) of Brits believed that challenger banks are as reliable and trustworthy as traditional institutions. And in general, consumers said they’d prefer to use these traditional institutions over neobanks (47% versus 11%).

It appears that consumers do not have a strong preference for challenger banks and their popularity has been driven by the simple fact they have been offering the most relevant, useful services. If traditional banks can successfully digitally transform and accelerate innovation, consumers will be there to support them.

The final word

Whether banks are new or well-established, they need to keep up with the changing needs of consumers. This could be anything from offering customised card artwork through to promoting more inclusive products such as voice payment cards.

The newer ‘challengers’ may have been the big disruptors in the financial services landscape over the past 10 years – but banking players of all sizes remain in the race to attract consumers and convert them into long-term, loyal customers. Those who embrace change will be the ones to stay relevant and grow in the years ahead.

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