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What is a challenger bank?

Apr 16 2021
3 min
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Corina
Chief Marketing Officer

A challenger bank is a retail bank that is smaller and newer than a traditional and long-established bank.
They are usually founded after the 2008 global financial crisis and bridge the gap between the customers' needs and the neglected verticals by the mainstream banks due to their old systems, mindset, and market dominance.


Challenger banks build their systems from scratch, which allows them to create agile processes, adapt to the market fast, meet the customers' needs through friendly experiences and needed features, and provide stunning customer experience, more flexibility, and better deals. 

 

Challenger banks Pros and Cons 

challenger banks advantages 

  • online-only operations 
  • simple and straightforward User Experience 
  • digitalized beaurocracy 
  • fast setup and/or processing, no matter the action you take
  • lower commissions and better conversion rates for currency exchanges 
  • specialize in the customer's main needs: day-to-day banking, traveling, saving money, etc.
  • financial well-being options: accessible trading stocks options, cryptocurrency trading, insurances, etc. 
  • transparency

challenger banks disadvantage 

  • no physical branches: so if you want to go to the bank and have a meeting in person, this might not be an option for you
  • niche banking services: while a bank would offer you credit cards, mortgage, saving account, loans, etc., challenger banks specialize in just a few services. Make sure you select your challenger bank based on your needs.
  • ATM withdrawals restrictions; you may have some limits per day regarding the amount of cash you can withdraw, so if you are a cash person, there is no bank to go into and withdraw more than your card limits.
  • not all challenger banks provide business accounts or services - and you may need them if you want to pay your employees via a challenger bank.

Why do challenger banks offer better deals and why are they named as challenged?

Challenger banks are small fintech companies that literally “challenged” the Big Four UK banks (Barclay’s, Lloyd’s, HSBC, and RBS) by providing smart banking solutions through emerging digital solutions.

 

There are multiple reasons you get those great deals, but to put it simply, they are mainly digitalized and automated, and there is no need for physical branches either, which allows them to save money and offer better deals for their customers.

On the other hand, traditional banks started to invest in innovation and digitalization more and more in the past years, which proves that competition leads to better deals and a higher focus on customer service.

Top 3 challenger banks we like and recommend

There is no one go-to bank we recommend, but there are a few we really like: 

  • Ikigai for the way they combine digital banking with wealth management, especially for everyone in their late twenties or thirties who have aspirations and goals — and they want to do more with their money, to quote Edgar, the co-founder of Ikigai.
    You may call us biased because we were the app development company building this fintech app, but TechCrunch and Fintech Times were not biased for sure.
  • Revolut for the easy way we can split the bill for our meal lunch at work, day-to-day banking actions, and traveling 
  • N26 for the way they handle expenses' tracking, setting aside money in real-time, and for being the only German bank that operates 100% in English.

Fintech news and insights to read

We covered everything about challenger banks, neobanks, and fintech products in our whitepaper: Designing & Building Fintech Mobile Apps_ in a COVID-19 World.

 Additionally, we have a bunch of other posts you could browse through: 

 

If you are interested in learning more about building your fintech app or challenger bank, drop us a line and we might be the ones to help you. Our team has entrepreneurial and startup background, which makes us focus on the product, go-to-market strategies, data-driven decisions, and everything needed to please customers and their apps' users. 

 

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