Challenger Banks in Europe. 2019 Overview
What is a challenger bank?
A challenger bank is a fintech company natively built around retail banking but having its own banking infrastructure and usually held privately.
These banks use digital distribution channels, typically mobile, to offer competitive retail banking services such as current accounts, savings accounts, loans, insurance, and credit cards. They are different from Digital Banks which are the digitized regular brick and mortar (branch) banks.
Challenger banks found their niche in targeting underserved and unserved demographics. They have also redesigned the user experience in personal banking and mainly targeting the digital savvy population.
What did help challenger banks to prosper in Europe?
Over the past few years, the EU’s progressive regulators have made it easier for challenger banks to obtain the financial license necessary to operate. Atom Bank, Tandem Bank, Monzo, Starling Bank, and N26 obtained a full bank charter, which takes up to 2 years receive, but it instantly widens the services these banks can offer for consumers. Revolut chose a different strategy: they applied for an e-money license which can be obtained much more quickly, but the scope of services is more limited. December 2018 Revolut also received a banking license.
New regulations help challengers expand services
“Passport”. Challenger banks have also been able to expand within the EU by leveraging the European Economic Area (EEA) “passport.” The “passport” enables a firm licensed in 1 of the 27 EU member states to provide financial products or services in another country without needing further authorization in each country. N26 has already leveraged a passport to expand its service to 17 other EEA countries, Revolut also expands in many countries in EU. Some of the banks look into Asian or US markets as well.
PSD2. Regulators in the EU working actively towards open banking standards and the EU’s Revised Payments Services Directive (PSD2). It should allow third parties to safely and securely access customers’ current account data at their request.
Image from https://www.finextra.com/blogposting/12932/psd2-explained-in-3-simple-gifs
The open banking standards. They require the UK’s nine largest bank providers of personal and business current accounts (like Lloyds, Barclays, HSBC, Santander, and RBS) to implement open standards for application programming interfaces (APIs).
Openness for partnerships
Challenger banks ramps up partnerships with other fintechs by launching an API marketplace.
