Challenger banks challenging the status quo!
- By Kiran Kalmadi and Durga Prasad Balmuri
Atom, B, Fidor, Tandem, Monzo, Masthaven, Soldo, Zopa - well, these aren't new elements added to the periodic table, but are new-age challenger banks, challenging the status quo of the banking industry. For those who were expecting us to tell the name of the new elements that have been added to the periodic table, we have a surprise in store for you towards the end of this blog. For now, we are focusing on the challenger banks. Most of the challenger banks came into existence post 2008 crisis, and they have surged with accelerated pace after 2013. While some challenger banks like Masthaven Bank, Starling Bank, and Monzo Bank have got their banking licenses, others like Redbook Bank, CivilisedBank, and Lintel Bank are still waiting for their turn.
Challenger banks have mushroomed, thanks to lack of customer confidence in traditional banks, increasing smartphone penetration, and high expectations from the millennial population. Adding to this, the regulatory impetus provided by regulators of many countries who have come out with policies that are positive for starting of challenger banks and other fintech companies with measures, such as:
a) Creation of a regulatory sandbox by Financial Conduct Authority (FCA) in UK. These sandboxes, set as part of project innovate by the FCA, allowed new offerings or services to be tested out in environments, which are immune from standard regulatory restrictions
b) Formation of innovation hubs, for example, Australian regulator Australian Prudential Regulation Authority (APRA) set up innovation hub to assist fintech companies
c) Issuance of a whitepaper on supporting reasonable financial innovation through fintech in the US by the Office of the Comptroller of the Currency (OCC)
d) Starting of fintech accelerator programs
Before the emergence of challenger banks, there certainly was a vacuum between what customers really wanted and what was being offered in various areas of banking services. Millennials, who were comfortable with the Facebook, Google, and Amazon's of the world started expecting similar customer service, user-experience, and convenience in their day to day handling of finances. Challenger banks with their light-asset model, lack of legacy hang-over, and a focus on cutting-edge technology have emerged as a whiff of fresh air in the banking arena with this business model. These banks, being largely digital, are breathing down the necks of traditional financial service providers by providing innovative, efficient, and personalized range of banking services.
Features like mobile only, biometric logins, free checking account, opening accounts in few minutes, getting loans in minutes, spend analytics, 24x7 customer service, quick money transfer, peer-to-peer (P2P) lending, real-time balance checks, gamified experience, and few others are attracting customers to challenger banks. These banks with simple business models enjoy cost and operational advantages, which allow them to provide services at better rates compared to traditional banks.
Challenger banks too have their own challenges and the going will get tough in the years ahead. Challenges like stricter regulatory norms, acquiring new customers, and customer retention is bound to test out these new generation banks. However, a much bigger threat to encounter will be when the traditional banks with their financial clout revisit their business models and start focusing on niche banking areas.
With competition sure to race up among challenger banks and with more challenge from traditional banks, more activity is expected in 2017. Keep watching this space!!
For the chemistry enthusiasts out there, the International Union of Pure and Applied Chemistry officially approved the name and symbols for four elements: Nihonium, Moscovium, Tennessine, and Oganesson to the periodic table of elements.