Challenger banks are a new breed of financial institutions. They’ve been around for a while, but they’re becoming more popular as more people move away from traditional banking methods. They also tend to use technology in innovative ways to keep costs low and provide better customer service than traditional banks can offer.
Challenger banks are retail banks with a specific focus on a couple of key markets.
When you think of a bank, you probably picture a large, traditional institution. But as the financial landscape changes, consumers become more open to new alternatives. Some banks have emerged that embrace a different approach. These banks are often tech companies with years of experience in the industry now looking to bring their expertise to retail banking.
Challenger banks are focused on specific markets and tend not to be as large or complex as traditional institutions. They also tend not to offer all the services that larger firms do. For example, challenger banks may offer mortgages or savings accounts but would not typically handle investments or credit cards.
These banks can be much more agile in taking advantage of new technologies.
In the past, they would have to wait for a large corporation like Citibank or Bank of America to incorporate cutting-edge technology into their systems before taking advantage of it. Now, these small startups can implement new ideas quickly and cheaply.
Smaller startups also benefit from not having to pay for the enormous buildings that larger banks need for their branches and offices. In addition, because these small companies don’t have as many employees, they don’t need to pay as much in salaries or benefits.
Therefore, they can pass those savings on to customers by offering lower fees than traditional banks offer on essential services.
Challenger banks are also often well-funded by venture capital or other sources
Venture capital firms are interested in challenger banks for several reasons, including:
- They’re looking for innovative ideas that can disrupt the status quo. Venture capital firms want to do something new and exciting. If you’re a challenger bank, you’re probably trying to do just that—and they want to be a part of it.
- They’re looking for companies with a competitive advantage over their competitors in the market space.
- They’re looking for companies with scalable business models that they can replicate across multiple locations. When you open up another office or location elsewhere, your costs won’t increase dramatically.
They can keep costs lower
One of the most significant advantages challenger banks enjoy is their ability to lower costs.
- Branch network. The cost of a branch network can be prohibitive for challengers, particularly if they’re trying to establish a high street presence. However, challengers built on digital platforms do not need physical branches or the high overheads associated with them. These firms may partner with existing high-street banks or go it alone in building their digital properties. Either way, they save themselves huge amounts of money by not having a physical presence at all.
- Physical branches. In addition to eliminating physical branches entirely, some challenger banks are choosing not even offer the option of visiting one in person. Therefore, they don’t need expensive infrastructure or train staff members.
- Staffing/payroll costs: Staffing is another big cost for any company. Cutting down on the number of staffers is straightforward for innovative banks.
- Regulatory compliance: Challengers don’t usually have the same regulatory reporting requirements as larger incumbents, saving them money too.
They can be more competitive than major brands that offer an array of services across multiple industries.
Challenger banks can focus on one thing and do it well. They can use technology to deliver a better customer experience and offer higher-quality products at lower prices.
Challenger banks focus on high levels of customer service and meeting those customers where they are
Challenger banks place a high emphasis on customer service. It helps customers feel valued, reassured that they are in good hands, and confident about their purchased products and services.
That is by design: challenger banks have made a conscious decision to invest heavily in hiring the right people who can deliver on this promise of high-quality service.
Challenger banks were designed for a world where banking is done remotely over expensive physical branches.
They may not have the same physical presence as their larger counterparts, but they can still be profitable and competitive.
In fact, because challenger banks don’t provide services across multiple industries as major brands do, they can offer better rates for customers who want specific kinds of financial products and services.
Challenger banks are an exciting development in the world of retail banking. They provide a service that most major brands cannot, and they do so with a focus on customer service and convenience that is unmatched.
Their success has led to many more challengers entering the market, but these new players still have a lot to learn before they can compete with established brands.