Challenger Banking: What Is It, and Does It Live Up to Its Name?

The UK has always been the center of conventional banking, and this is not a coincidence. Until recently, it was nearly impossible to compete with decades- and even centuries-old established banks. With the global economic crisis in 2008, the country decided to ease the process for newcomers in the financial competition. After that, the whole banking system has gone down a new path; first in the UK, and then globally.


The newcomers were named ‘challenger banks’ and, with their new financial technologies and the approaches that fit the needs of the modern-age customer, they actually began challenging the conventional banking system and its rulers. Even in a world where the established banks have proven themselves as trustworthy and secure institutions, challenger banks still managed to thrive. With open banking becoming the new norm globally, it seems like the whole world is going to embrace the new-age approach to banking and finances. The growth projections of the challenger banks are pretty exciting, too. According to Globenewswire, the challenger bank industry was valued at $20.4 billion in 2019, and its market size is projected to reach $471.0 billion globally by 2027. Yes, it seems like the giants of the financial arena are facing a challenging decade. So, what makes challenger banking stand out in a conservative environment?

Challenger Banks Address the New Generation Who Process Money in a Different Way

While the older generations see decades-old banks and financial institutions as secure and trustworthy, millennials and Gen-Z see them as the source of the problem. The same rule applies to almost every industry for the younger generations; they want what’s new, cutting-edge, sustainable, and comfortable. According to Swell Investing, 84% of Gen Z investors are either already investing in socially responsible investments or plan to invest this way in the future. Nearly 31% of Gen-Z investors are willing to allocate 50% or more of their investment portfolio to impact investments, and one in four millennials would do the same.

When we look at the path challenger banks are taking, we see a perfect fit for the younger generations’ financial demands. Instead of opening new branches on every corner, challenger banks choose a digital approach. This way, they can up their customer service game while using less budget and, for a generation which needs open communication, that’s more important than an ad in Times Square.

You can expect to see a new form of challenger bank which will speak to the needs of a particular persona, but if we need to classify the new forms of banking that are challenging the giants, here they are:

All-Digital Banks

The fastest-growing trend in the banking industry is undoubtedly the branchless banking model. Thanks to today’s financial technologies, we see many start-up banks. One of our beloved clients, Vive Bank in the UK, is a perfect example of the branchless model. The bank has no branches, yet it stands out with its fast and effective consulting service, open banking features, and ever-evolving features that can be carried out 100% digitally.

Until last year, the industry was talking about the advantages of going branchless, but today, with the effects of the pandemic, even ATMs seem like things from the past. Money is changing form faster than expected and, soon, e-money will rule the world. In the end, this is a great opportunity for digital banks.

Vive Bank uses our e-banking platform that offers a secure, up-to-date, and unified experience for both customers and banks.

Commercial Lenders

While the majority of the challenging banks embrace a highly digital approach, some newcomers prefer to stand out with their convenient loan plans. In the UK, Shawbrook Bank and One Savings Banks are the perfect cases for commercial lenders.

Conventional Challengers

When the country opened up space for newcomers in 2008, not everybody went the digital way. New institutions like Virgin Money and Metro Bank preferred to go the conventional way. Still, they managed to become reasonable alternatives for many people. Although they were called ‘challengers’, in today’s market they have joined the challenged group.

The Adoption of Open Banking is Accelerating

There are many forces that mean open banking could finally be the new approach, and challenger banks are one of the accelerators. In order to compete with the rise of digital banks, every bank, giant and newcomer alike, are trying to take advantage of digital tools and open banking. Luckily, it is easier than ever to adapt to the newer systems with ready-made and customisable tools like ours. Here at Tmob, we have the vital tools for every financial institute or start-up ready. Our highly-customisable platforms and modules include e-banking, mobile financial solutions platform, and e-wallet. With industry-leading clients and more than a decade of know-how, every financial institution can adapt to open banking smoothly with the latest digital tools to offer the best experience.