Challenger banks: Part 1 - shaping the digital banking (r)evolution?

Banking will always be needed, but banks, as we know them now, could easily disappear in the future, Bill Gates once said. Even at this point, we could not predict how many years will have to pass until we find out how realistic this scenario proves to be, but one thing is certain: the current landscape considerably supports the sentiment. 

Powerful forces are currently reshaping the banking industry. Customer expectations, technological capabilities, regulatory requirements, economics - all these are creating a new context which redefines how business is conducted, how consumers are engaged with and how financial products are manufactured.

In focus: the changing face of digital banking

The current and future shape of banking and payments, with a particular focus on their evolution and impact, constitutes the subject of debate at various industry events. This year, the inaugural Money2020 Europe event in Copenhagen was no exception. A carefully selected set of speakers provided various views on all aspects of innovation in banking. The perspectives were based on trends that include constantly connected consumers, open platforms in bank infrastructure, the role of mobile and social channels, as well as the regulatory reform. 

Challenger banks: on a quest to steal the show

In addition to several initiatives from established European financial institutions, Money 2020 Europe also addressed the entry of challenger banks, among which Tandem Bank, Fidor Bank, Atom Bank, Mondo, Number 26. Unencumbered by legacy systems, operational processes or branches, and offering new money management features, as well as payment functionalities, these players aim to offer eye-catching services in particular niches, in a bid to enrich the banking experience for consumers.

Since the financial crisis of 2008, the image of the big banks has deteriorated significantly. In the past few years, regulatory efforts to inject competition into the banking sector have paved the way for a number of startups. Metro Bank was the first institution to gain a full banking licence in 2010 in over a century and six new banks have been authorised by regulators since April 2013. Some 26 banks were in discussions with the regulator about applying for a licence in early 2015.

Hailed as “challengers” to the largest lenders, these players constitute a diverse group with a variety of business models: some are narrowly focused niche players, others want to serve a broad range of corporate and retail customers. Irrespective of their strategies, all of them operate with a sole purpose in mind: to capitalise as the bigger banks come under regulatory pressure. But how much progress have they really made? Do they have the firepower to beat the big banks at their own game?

You can find Part 2 of this article here.

About the author

Adriana Screpnic is Editor-in-Chief at The Paypers. Adriana has been actively involved in covering online payments-related topics for five years now, taking on diverse and challenging tasks ranging from news editing and market research to writing in-depth analyses and feature articles and becoming involved in large-scale, industry-specific research & contents creation projects.