Challenger Banks

Talking about a revolution

By Naoimh Reilly

 

A revolution in banking is coming. Actually, it’s already here, in the form of a challenger bank. Technology has surpassed banking in leaps and bounds, leaving a bewildered old guard in its wake.


Traditional banking has progressed little in the last decade and shifting consumer expectations are causing frictions and exposing the cracks. With the exception of online and mobile banking, which is simply a different interface doing the same type of banking, nothing has changed.

 

Banking is business in dire need of a new image, a new focus. We’re in an unusual space, where traditional banking does not fulfil the needs of today’s account holder and the new challenger banks aim to do just that.  


We have self-driving cars, but still have to wait for an updated bank statement. Simply opening an account still requires paper statements and other paper proofs of identity. What if you could use your online digital print to verify your identity? And use that digital verification to link information to your account to get real-time financial advice and information? You could access information from inside your account for your own benefit. This is where Fintech comes in.


Fintech is essentially trying to bridge the gap between what traditional banks are offering and what you actually need, from a user experience and convenience perspective. Fintech is shaping the future of banking and it’s the cornerstone of challenger banks. This technology aims to work for the consumer and transform your banking experience.

 

However, traditional banks are not leading this change, smart technology is. Innovative use of technology in the design and implementation of financial services will transform the banking world as we know it. This gap is so big, non-traditional banking players are getting involved; including Facebook, Amazon and Alibaba, who have all used regulatory licences to integrate financial capabilities into their business models.

 

These new apps will allow you to transfer money from one source to the next, but don’t stop at that. They incorporate real-life activities, such as booking flights and travel, making a doctor’s appointment, ordering a taxi - and all from the one place. We no longer want to have separate apps, we want one user-friendly experience that will make our lives easier.

 

Financial platforms of the future will not be ordinary banks but new technology firms. These fintech firms want to understand the customer experience. They want to give customers what they want.

 

With challenger banks, the consumer will be the biggest beneficiaries; from a user experience and convenience perspective, but also ease of access and cost savings. Millennials, in particular, want better and more convenient banking that is seamlessly integrated into their lives through their smart phones and smart wearables. The bankers of the future will be designer programmers and creative thinkers.

What are challenger banks doing different to traditional banks? And, why should we take notice?

 

A challenger bank is specifically designed to compete with big established brands by offering better services and deals. Say goodbye to low interest rates on your savings and letting your money stagnate on a balance sheet. Disrupter and challenger banks attack the very core of what commercial banking has been for hundreds of years.

 

Challenger banks also bring much needed competition into the sector, giving control back to the consumer. More and more challenger banks are being granted licences, including Aldermore, Monzo, Shawbrook Bank, United Bank UK, N26, Harrods Bank and Tesco, and of course iamMoney.

 

The sector is growing fast, with consumer demand being the driving force. One important feature of challenger banks is a secure, user-friendly app and online interface. This will develop even more in the future and the app will be akin to a mobile wallet. 


They may not be your run-of-the-mill bricks and mortar banks (who are closing branches daily) but that is no reason to be afraid of them. Most people have turned to mobile and online banking already in some form. Blockchain technology ensures that fraud will not be an issue. These new financial businesses still have to comply with the same rules and regulations as the traditional banks and your money will be protected the same way.

 

These challenger banks can compete to offer better interest rates because they still use customer deposits to build their balance sheets and lend money to people. They also come with a clean slate with no legacy issues as they were never bailed out like so many of the world’s biggest banks.


Long gone is the boom time folly of unregulated banking, we are now entering a new era of unprecedented acceleration and technology that can give us ‘chat bots,’ artificial intelligence and virtual assistants which will change the way we manage our money forever. It is exciting, progressive and timely – vive la revolution!