Challenger bank as an alternative to traditional banking?
The advent of the credit card in the 1950s and ATMs in the 1970s changed the way people access and pay for goods. The Internet revolution in the early 1990s. has had a profound impact on financial markets by offering online banking, mobile banking, and online brokerage services. The FinTech revolution built a new order in the world of finance after the global crisis of 2008. As The Economist notes, the consumers who will benefit most from its rapid growth.
Challenger bank usually refers to a new generation of smaller banks. This type of institution emerged a decade ago. Their activities overlap with traditional banks, such as Millennium Bank, Santander or PKO. A factor in the proliferation of challenger banks was a change in European Union legislation after the 2008 economic crisis. After the change of law it was easier for such financial entities to function – they were supposed to boost the global economy. Relatively lower costs money transfers and less bureaucracy were to optimize costs, thus attracting new customers. Economists point out, That being innovative and customer-focused is critical to the survival and growth of banking.
Some 53% of traditional banks claim to be customer-oriented, while challenger banks reach 80%. FinTech startups take this approach because they are able to understand their customers better than traditional banks, and thus respond to their needs more effectively. Although challenger banks often offer the same products and services to their customers as the banking giants, they do so much more efficiently and quickly. “Neobanks” are actively competing in financial markets, specializing in areas insufficiently served by traditional banks. The most popular brands in this industry are Starling Bank, Monzo, First Direct, Metro Bank, Revolut, Nationwide, Halifax, Natwest, Lloyds. Metro Bank began competing with long-established British corporations 11 years ago by offering its services 7 days a week. This type of banking stands out from traditional banks, with modern fully digitized financial technologies. These activities avoid costs and do not require the customer to spend time coming to the bank’s branch.
Changes in traditional banking
Traditional banks are accelerating the process of digitization. In 2019, the implementation of Payment Services Directive 2 assumes that the idea of regulated open banking will be safely introduced. These changes have allowed entities to access customer accounts at different banks, verify the amount in the account before the service is provided, and process payments on behalf of a third-party provider. Reorganization of bank operations during the pandemic has accelerated digitalization processes. Companies, in order to remain competitive, will be forced to implement these changes in even less time than anticipated. According to the report World Retail Banking Report According to a study by Capgemini, modern banking will soon be based on fast implementation and taking business risks, as well as on simplification and automation of internal processes.
Greater customer satisfaction = more customers?
From the survey Which? analysed by the portal moneytransfers.com It follows that challenger banks differ from traditional banking in their approach to customer service. Analysis of service, communication, transparency of fees and complaint handling resulted in 88% customer satisfaction. Challenger banks offer consumers aesthetically pleasing, better designed mobile apps. They also stand out in terms of innovation, as traditional banks do not introduce digital changes as dynamically as startups do. “Neobanks” by saving money on rent and staff in the outlets can put that money into technological innovations that streamline the entire banking process. Such activities may encourage younger users to use challenger banks, thanks to the efficient use of mobile applications.
This type of banking is ideal for people who travel a lot, thanks to its easy international money transfers, The high costs of commissions and currency conversion can be avoided.
Online banking and the issue of trust
From the analysis of a report YouGov published on moneytransfer.com UK citizens are most confident in online banking (74%). 73% of Poles approve of the trust and security of online banking. In France and Spain the level remains above 70%, followed by Australia and Sweden. The least trust towards these transactions was recorded in China, Hong Kong and Singapore. 83% of respondents believe that challenger banks are not as reliable and trustworthy as traditional banks. Only 17% of respondents indicated that they are as reliable and trustworthy (read more).This type of financial service is popular in Poland. Revolut has reached over one million users in the country on the Vistula river and the interest in their services is growing all the time. Undoubtedly, the COVID-19 pandemic has affected the perception of financial resources, according to a YouGov report, 64% of respondents indicated that, richer from the lockdown experience, they prefer to use the services of proven banks.
Challenger banks stand in an uncomfortable place, a lot of customers are worried about their profitability, with a large scale of growth. One “neobank” in its financial report indicated that it made an annual net loss of £113.8 million in 2020, up £47.1 million from 2019. While Starling Bank announced at the end of 2020 that it has become profitable, generating profit from interest and commissions.
We can think that challenger banks will continue to grow. It is worth remembering that such institutions are subject to strict financial supervision and regulation.
The problem may arise in offering an innovative. Once offered only by challenger banks, the ability to open an account through an app, take a selfie or photo ID has become a basic option at established banks.