Published on November 1st, 2016

Fintech Trends: Challenger Banking

As the financial world is changing towards more tech-oriented, customer-centric products, the door has been opened to new entrants in the industry. In addition, during the recession, customer trust in banks has fallen drastically – the perfect opportunity for new so-called challenger banks to enter the market.

What are Challenger Banks?

According to Burnmark’s October case study, Challenger Banks are “a new breed of technology-driven and customer-centric financial institutions”. Those banks split into three categories: Embryonic Challengers who are using mainly mobile apps to form partnerships with other banks; Real Challengers who have obtained a banking license in the last five years; and Pseudo Challengers who are the digital partners and startups of existing banks, using both branch and digital channels.[1] On the other hand, a report by KPMG divides Challengers into Large (longer established), Small (from the past ten years), and Large Retailers (retailers who have entered the financial services market).[2] Thus, the categories of Challenger Banking are not concrete. Most, however, agree that those banks offer cheaper, faster, customer-oriented financial products that have helped disrupt the industry.

Why Challenger Banks?

Challenger Banks have come in and shown that banking can be truly digital. Many of them rely purely on apps while others provide API-based services. All, however, attempt to simplify the financial world.[3] Those new banks have a larger return on equity compared to large banks, more flexibility when it comes to lending, lower operational costs and an increase of profits by £194 million compared to a decrease of £5.6 billion for UK’s largest five banks.[2] Some examples of Challenger Banks include Atom Bank – founded in 2014, it is a UK digital challenger bank; Moven – founded in 2011 as a neo-bank; Tandem Bank – founded in 2013 as the second challenger bank to be granted a baking license in the UK. Germany also plays a huge part in the Challenger Banking movement by including Fidor Bank, N26, and of course FinLeap’s solarisBank – a tech company with a banking license that enables digital companies to create solutions to their financial needs.[4]

The Future of Challenger Banks

Challenger Banks have had quite the success in the past year, revolutionizing the way banking is viewed. They, however, will have many new battles to face. One of the biggest upcoming challenges comes from the UK as banks will have to face the Brexit vote which will hit international challengers with new regulation. In addition, competition amongst the new breed of banks is growing and will soon get harder to overcome – only in the UK 20 new challengers are predicted to apply for a banking license and enter the market.[5] The way people behave is also quite unpredictable – smartphone usage percentages change constantly, the availability of venture capital varies, regulations are always being modified, and of course Millennials’ behavior is never completely for sure.[6] Whether Challenger Banking will continue to grow at the same speed only the future will tell.


[1] Burnmark Challenger Banking Report

[2] KPMG A new landscape: Challenger banking annual results

[3] Are challenger banks a challenge for incumbent banks?

[4] The World’s Top 10 Neo- and Challenger Banks in 2016

[5] Are we set for another wave of new challenger banks?

[6] The changing face of challenger banking – what does the future hold?