Are challenger banks now faced with their own challengers?
Since their appearance in the mid-2010s, challenger banks have changed the entire financial landscape, experiencing exponential growth.
But for the first time in their short history, the challengers are now challenged themselves.
These new challengers build on the work done by companies like Monzo, Revolut, N26 and Starling. But they don’t just create and deliver new, hyper-customized features. They create new and hyper-personalized banks.
The most exciting part? It’s not just a new wave of banks issuing a challenge. They are also businesses.
A new wave of personal challenger banks
The 2010s were all about mass appeal. But as we move through the 2020s, it’s about taking the features and level of customer experience that made challengers so popular and hyper-customizing it.
Today, banks are created to meet the needs of specific communities. Banks like Daylight, Tomorrow and Fardows, which serve LGBTQ+, social and Muslim customers respectively.
But it’s not just about creating a bank and saying it’s for a certain audience. It goes far beyond marketing. It’s about offering authentic features that appeal to different communities. For example, Daylight provides debit cards with the name chosen by the account holder, no matter what their ID says. Fardows allows account holders to borrow money in a fully halal-compliant manner. Tomorrow, customers are automatically investing in renewable energy and social initiatives, with every €5 they spend to restore the natural life of a wheelbarrow.
There are now banks for different professions too. In the United States, there are a number of challenger banks aimed at physicians, such as BankMD, which offers loans specifically for opening new practices, and Panacea, which provides refinance designed specifically for medical school debt, dental and veterinary.
Then there are banks for musicians like Nerve. In addition to financial features targeted at the sometimes chaotic life of a creative, it also syncs with Spotify to display streaming and subscriber data and offers networking functionality for easy work discovery and collaboration. artists.
This level of specificity also makes it much easier for challenger banks to become profitable, which they have struggled with. Deloitte research suggests customers are willing to pay up to 20% more for hyper-personalized financial products.
This is something that non-fintechs and more traditional companies have realized as well.
A new wave of challenger companies
Interestingly, the other group of challengers-challengers will be mainly non-financial companies.
Today, thanks to integrated finance – the integration of financial products into primarily non-financial spaces – nearly every business in every industry can access new financial products for their customers. According to a recent study by Vodeno, in the UK, Germany and Belgium, 75% of retailers already use integrated finance, while 56% plan to introduce other financial services in the near future. These include business loans, cards, virtual accounts, wealth management, insurance, cross-border payments, foreign exchange, and more.
Businesses can essentially become one-stop-shops for financial services, allowing their customers to conduct all their financial activities on their site and platform. They can even become banks themselves, something modern consumers are looking for.
This is done through a simple API integration, which makes it considerably faster and cheaper than building these services from scratch. Businesses can offer buy now, pay later (BNPL) through companies like Klarna and Afterpay, access payment rails and digital wallets from Railsr and Treezor, and offer financial exchanges and transfers from Wise. The list continues.
But the reason Integrated Finance will be so successful is because of the customization options available.
Companies can behave like hyper-specific challenger banks and target communities that share a passion, interest or career, but they can go further than that. They can target individual members of their own customer communities. Think about how Google monetizes search and social media monetizes relationships. Businesses will soon do the same but with spend data.
For example, if you’re buying a flight or a hotel, chances are you’re also looking for travel insurance, vacation money, budgeting tools, and everything else involved. on a trip abroad. Businesses can deliver these options just when they need them, triggered by specific purchases, emerging spending habits, or even geolocation.
This hyper-personalization provides a vastly superior level of customer experience and I’m sure it will soon become the norm.
What now for the original challengers?
The original challengers have become part of the financial furniture and are not going anywhere.
The new challengers are okay with that. The original challengers were created to disrupt the old way of banking. The mission of this new race builds on this work, using the same guiding principles.
Despite the size, some of the originals have also grown, at their core they are still nimble, tech-driven companies. Many are already working with the new challengers, integrating their services into their ecosystems and vice versa.
Fintech in the 2010s meant challenges. Fintech in the 2020s is all about collaboration.