Growth Wars: Barriers To Challenger Bank Growth

Lex Gillon
Frontira | Product Insights
5 min readFeb 19, 2020


We’ve spent a lot of time singing the praises of N26, Revolut, and Monese, highlighting the mechanisms driving their rapid ascent. Now let’s take a look at some factors that might slow or even stop these companies’ growth. To do this, we will answer the questions:

  1. What obstacles might these digital banks encounter?
  2. What can these digital banks teach new players?

Question 1: What obstacles might these digital banks encounter?

Amid the challenger banks rapid growth, cracks are starting to show, fissures that threaten to slow the challenger banks growth. There are three barriers we want to highlight:

  1. Technical difficulties
  2. Bad customer service
  3. Organizational behavior problems

1. Technical Difficulties

Digital banking systems are convenient, providing digital interfaces, apps, and personal analytics to improve customer experience, yet they can be buggy, putting users’ lives on hold.

Let’s take Revolut. The challenger bank’s growth is impressive, recently breaking 10 million users. However, whether a consequence or coincidence, the digital bank often crashes or blocks user accounts, leaving users without access to their money.

Revolut is not alone. N26 customers have also cited technical pitfalls such as glitches during the ID verification process during on-boarding.

How this becomes a growth barrier

Because the industry is still quite new, technical problems have more weight and invite negative word of mouth. According to the Fujitsu survey of 8,574 consumers in the UK, Germany, Spain, the Nordics and the Republic of Ireland conducted by Censuswide in August 2019, “challenger banks are struggling to secure consumer confidence; only 15% trust these newer institutions completely, while 31% have no trust whatsoever.”

Given the lack of trust in these platforms, as well as the technical shortcomings and resulting bad press, potential customers may choose three paths: opt for a more stable digital platform, switch to a more familiar physical bank, or choose a hybrid online-offline system. Additionally, technical glitches like this could discourage users from using digital banks as their primary account altogether.

2. Bad Customer Service

While legacy banks aren’t known for their exceptional customer service, the one thing they have that Revolut, N26, and Monese don’t, are physical branches where customers can lodge complaints. Digital banks, with chatbots and short-tempered staff, do not prioritize customer service. Another issue is that customer service varies from region to region: there’s no one-size-fits-all approach. With these banks playing in so many markets, they must find a comprehensive and flexible approach.

How this becomes a growth barrier

People vote with their feet and negative emotions tend to resonate deeper than positive ones. According to Stanford communications professor Prof. Clifford Nass,”Some people do have a more positive outlook, but almost everyone remembers negative things more strongly and in more detail.” So even if these banks do everything right 95 percent of the time, how they handle the first real problem is very important. This opens up space for customer focused new entrants to offer more than just “cool” features.

3. Organizational Behavior

Organizational behavior describes company culture, structure, and incentives. For the challenger banks, this means focusing on growth and innovation, regarding culture as something that can be developed later. However, this mindset can lead to high employee turnover and a toxic working environment.

In early 2019, a message from the Revolut CEO Nikolay Storonsky leaked, causing a PR stir across the tech community. The reason? It illuminated tech’s darker side. In the letter, he encouraged working on weekends to meet targets, non-negotiable firing of under-performers, and withdrawing even high-performers’ bonuses if they didn’t meet KPIs. The culture, one defined by autonomy and results, was toxic and caused high HR turnover (three HR heads in two years) and high employee turnover. According to, 80% of Revolut employees last less than a year.

Looking at N26, though there aren’t any press fires to refer to, N26 has room for improvement where employee satisfaction is concerned. Glassdoor indicates that just over half of the 219 reviews have a Positive Business Outlook (54%) or approve of the CEO (55%). 59% of respondents would recommend the company to a friend.

How this becomes a growth barrier

Companies are only as good as their people. High employee turnover means lost company expertise, increased training costs, and wasted time. Additionally, toxic work cultures breed anxiety, mental and physical health issues, and burnout.

On a pure business front, when companies invest in employee engagement and culture, they see a 4x increase in average profits and the same in profit per employee.

Question 2: What can these digital banks teach new players?

1. Consider a Hybrid Online-Offline Approach

Offline is not dead! Legacy banks looking to enter the digital space might consider a hybrid offline-online model, which gives users access to the convenience of digital and the care of the neighborhood bank. According to Shopify, 82.5% of commerce will still happen in-store until 2021, this retail commerce trend could provide an insight for retail banking.

2. Focus on Customer Service

Even though these digital players are innovating quickly and focusing on feature upgrades, they’ve forgotten the most basic need: good customer service. The market still has space for a customer service centric organization that addresses consumer product interface needs as well as customer support requirements.

3. Balance the Need for Speed and Infrastructure Requirements

Digital innovation requires agility. However, customers must trust their banks (i.e. be able to access their funds when they want them). Digital banks and those building them must balance the need for speed and the app infrastructure as well have a crisis management communication system at the ready.

4. Create a Culture That Brings Out the Best in Your People

Consider building clearer feedback systems that allow employees to easily file grievances, while enabling companies to rapidly solve issues and integrate feedback. This is not only good for employee quality of life, but the business’ bottom line.

Overall, digital banks have added a net-good to society, allowing greater inclusion and access to financial products. However, with the technical and customer support issues, can customers trust these new services?

In order to maintain their growth, challenger banks should focus on building trust in their technology, improving the customer experience, and cultivating positive company cultures. Otherwise, they will be replaced by players that consumers depend on.

Originally published at



Lex Gillon
Frontira | Product Insights

Lex is CEO and Founder of Modality Group, a sex product market research and business intelligence firm.