Challengers Banks (also known as neobanks) have developed a strong market share by offering digital banking solutions that align with the modern consumer. The global pandemic has certainly increased the hype around these challenger banks, but do they really offer a better option than traditional banks for consumers? Does anyone really even care?
The rise of challenger banks
It is widely agreed that Security First Network Bank was the first of these digital challenger banks to go to market in the United States in 1995. It was subsequently sold off to RBC in 1998. The technology side of the bank was spun off into S1 Corporation that was later sold to ACI. This kicked off decades of challenger bank advancement.
Consumers have since been inundated with these challenger banks disrupting the traditional banking industry. Boasting offers of convenient online disaggregated services such as deposits and debit cards (Chime, Marcus), payments (Venmo, PayPal), credit cards (OlloCard, Mission Lane), consumer loans (Avant, Rocket Loans), point-of-sale financing, (Affirm, Klarna) and even aggregated services (Nerd Wallet and CreditKarma).
The natural evolution would be for these single product or service entries to expand their market share horizontally. For instance, lenders adding deposit accounts, credit cards adding consumer loans, and deposit accounts adding loans, etc. In other words, these challenger banks are on the road to becoming full-service banks without branches. And in the midst of a global pandemic, the branch model changed forever – even for traditional banks.
That begs the question… Do these neobanks really offer a better option for consumers than traditional banks?