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sbourke
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Challenger Banks and the future of your financial hub

A whole new kind of bank is starting to appear in the world of retail banking. The mission of these kinds of banks is to make managing and understanding your money as easy and transparent as possible. These banks take their inspiration from the likes of Facebook, Twitter and Google as opposed to ING, RBS and Santender. Their mission is to be your financial hub. They are known as Challenger Banks / Neo Banks.

From KPMG Fintech Challenger Bank report

They do not have complicated financial products, but rather focus on making the users’ current account as easy as possible to manage. This is achieved via a mobile first user experience which leverages the world of ‘big data’ and ‘machine learning’ to inform and help the user understanding what is happening with their money and to make suggestions on how to better manage their finances. These companies even have community managers which engage with their user base to better evolve their product offering. In some cases, these banks openly allow their user base to contribute to their funding rounds (Monzo).
 
 These exciting changes have been made possible for three core reasons.

  • The introduction of PSD2 EU regulation is opening up the concept of single sign on to your banking account. Thus allowing for retailers or aggregators to talk directly to your bank account instead of going through a variety of middle men as required today.
  • User habits have changed dramatically in the last 7 years. Everything is mobile first. Customers now expect a rich, user friendly experience in all other wakes of life when engaging with a product via mobile.
  • With new usage habits, and the opening up of data — so called ‘big data’ and machine learning techniques can now be easily applied to previously silo’d information.

The traditional banking world is taking notice — Challenge banks such as Atom Bank , Fidor Bank and Starling Bank have all recieved significant investment from different banks around Europe.

These challenge banks initially start off as a form of limited bank, not directly taking anything onto their own balance sheet but rather outsource the blood and guts of the banking operation to companies such as Bancorp while they continue to focus building user features which create rich and engaging experiences such as Travel reports or Saving pots

What will be interesting to see is if these challenge banks can pick up steam, there is already a reasonable level of M&A in the space with traditional establish banks already buying out start-ups in the space.

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