The Rise of Challenger Banks in an Increasingly Digital World
Digital transformation has become essential for banks to future-proof their business models, upgrade their operational efficiencies, and improve the customer and employee experience. A new wave of challenger banks (EQ, KOHO, WealthSimple, etc.) are on the rise and represent an intriguing option for consumers with new and innovative ways to look after their finances.
Digital is at the core of a challenger banks’ DNA. With a seamless customer experience and a value proposition that resonates with a specific demographic, challenger banks have been able to acquire a significant number of users around the world by consistently and accurately improving the product and user experience. Challenger banks are also excelling in customer engagement, and the industry is taking notice. In 2019, the global fintech sector had another amazing year, reaching $135.7 billion invested across 2,693 deals.
In an article titled, “What Does it Really Mean to be a Challenger Bank,” Fidelity National Information Services (FIS) SVP and GM, Andrew Beatty offers a great way of defining a challenger bank by what it does.
“A challenger bank challenges traditional banking. How so? Challengers do things differently, they often specialize in areas underserved by incumbents, and they offer a tech-first and innovative approach to banking.”
By their very nature, challenger banks are pushing their competitors to be more agile. Created for a digital-first generation, challenger banks have successfully won market share by placing customer-centric products at the heart of their business. However, that is not to say challenger banks don’t face their own set of complex challenges that demonstrate opportunities for improvement.
Access to capital and the ability to lend (especially in the face of the pandemic), is one of the biggest challenges that face these digital-first banks. Not having a trusted, established customer list and pool of wealth to draw on for lending and growth has pushed the power of innovation to the forefront, including innovations around improving the customer experience.
With the right technology and strategy, challenger banks can confidently address changing consumer demands, which center around these factors: transparency (meaning no hidden or excessive fees), ease of use (with no lengthy paper-based processes, endless branch lines, or long wait times on the phone), and finally accessibility (being able to use their bank services wherever, whenever).
