Is the Rise of Challenger Banks Disrupting Traditional Banking?

In general terms, challenger banks are types of banks that substitute traditional banks for customers. These banking services are generally more accessible, as it is provided online and used through mobile applications, compared to traditional banking.

The most well-known features are that they are more user-friendly and customer-oriented. Additionally, these banks offer low transaction fees, fast operations, and sometimes services that are not available in traditional banking.

Challenger banks have changed the competitive approach of traditional banks, especially with their transaction capacities and cost-effectiveness, and have caused many banks to become more customer-oriented today. It would be a bit wrong to use the word “disrupt” in this situation, but we can say that challenger banks have brought a new approach to banking, including traditional banks.

What Are the Advantages of Challenger Banks for Customers?

Challenger banks are generally known for offering innovative financial services to their customers. These banks provide many advantages to their users and offer transactions with much lower or no fees compared to traditional banks. This issue, which is very important for customers, provides a great advantage in terms of costs.

In addition, you will have the freedom to make transactions whenever you want in this new banking system, which uses mobile applications only with internet access, without being tied to any geographical location. Also, these mobile applications are modern and easy to use.

Naturally, it is unlikely that customers who have difficulty adapting to this new system will have problems due to not being able to carry out the transactions and/or not to understand them. Financial operations such as payments, money transfers, etc. made in challenger banks are generally concluded much faster and more effectively.

In addition, these banks are considered quite innovative compared to other banks because they give their customers more opportunity to use and manage different financial instruments than traditional banking. Finally, they outperform traditional banks in terms of customer satisfaction by offering personalized services, which is the case for some challenger banks.

How Do Challenger Banks Approach Digital Banking Differently?

There are many differences between challenger banks and traditional banks regarding digital banking. First of all, challenger banks focus on providing services through user-friendly mobile applications and/or digital platforms. This new system, which allows you to carry out all your transactions that you can perform in traditional banking, through your mobile application and/or online platforms, is very useful for customers.

Additionally, challenger banks are extremely customer-focused. This results in them constantly improving their services and applications thanks to customizable services and the feedback they receive from their users.

As mentioned above, the fact that the transactions of challenger banks are carried out via a platform and/or mobile application means that the transactions can be completed very quickly. Also, these banks do not have a physical branch and they complete their operations through a digital infrastructure, which provides a great advantage to the customers of these banks in terms of transaction costs.

In fact, it is not possible to talk about costs in some banks and some financial operations. Finally, these banks offer much more innovative financial tools and services than traditional banks as a natural result of the fact that challenger banks are much more flexible, much more customer-oriented, and much more innovative than traditional banks.

Are Traditional Banks Collaborating with Challengers?

Traditional banks might cooperate with competitors in times of increased competition in the financial sector. These collaborations occur in different situations and agreements. For example; traditional banks make agreements with their competitors (white label agreements) to enable them to use their payment systems and/or digital banking platforms to their own customers.

Traditional banks have agreements with their competitors, and these agreements will provide different advantages to the banks. In some cases, traditional banks may attempt to acquire or invest in other financial institutions that they see as potential competitors. This process makes it easier for traditional banks to access technological infrastructures and allow them to enter new markets.

What Challenges Do Challenger Banks Face in Regulation?

Challenger banks unfortunately face some regulatory challenges; just like traditional banks, these banks are regulated by financial laws and regulations. Licensing processes can be time-consuming and complex. Also, supervisory institutions have specific risk management standards and capital requirement standards.

It may be seen as a challenge for challenger banks to comply with these standards. Each financial institution must be careful in protecting customer data. Since this process will involve some infrastructure work, it can be considered as one of the difficulties for challenger banks. Additionally, regulations may change and/or be updated periodically, so banks have to adapt to this change quickly.

However, this situation may be challenging for challenger banks, that is new and developing banks. In addition, challenger banks, in other words, banks that have adopted this new banking approach using a new system and technology, may lag behind large and traditional banks in terms of competition and market access. This situation can also be considered a difficulty for challenger banks and must be overcome.

Can Challenger Banks Sustain Growth in a Competitive Market?

Challenger banks can easily continue to grow in a competitive market. As their names suggest, these banks are quite challenging. Unlike traditional banking, it has many strengths such as transaction speed capacities, transaction costs, and innovations it offers.

However, the key to this growth is their ability to improve their strengths and adapt to innovations in their soft spots which may be insufficiently improved. To talk about strategies within the scope of general growth; they can continue their customer-focused approach and make it stronger.

In other words, they can improve their strategies by providing instant feedback to customers and responding to customers’ demands and needs with personal and innovative products and services. Another strength of these banks is cost and efficiency. To compete here, they can reduce transaction costs and even stop charging fees for simple transactions such as money transfers, as some banks do. 

As a result, this approach can be a good alternative for challenger banks whose costs are not as high as traditional banks with a physical structure. In addition, by taking a few small steps towards trust, which is important for all financial institutions, they can become more appropriate and transparent regarding legal regulations. This will prevent them from having to deal with regulations as well as competitors in the competitive market.

In order to continue to grow in competitive markets, all banks should be able to constantly gain new customers. So, challenger banks must have an effective and successful marketing strategy. Additionally, establishing partnerships through agreements with industry competitors allows these banks to continue growing.

If challenger banks analyze market conditions well, recognize customer demands and needs early, act in accordance with these demands and needs, and quickly adapt to innovations, the examples mentioned above could guide and allow these banks to grow easily in a competitive market.

See you in the next post,

Anil UZUN