HomeNewsFintechFintech 101: What are Challenger Banks?

Fintech 101: What are Challenger Banks?

Competition in the financial sector has given rise to challenger banks. These entities aim to disrupt and challenge existing financial service providers in many different ways.

The Established Order

The concept of a challenger bank originated in the United Kingdom. Up until this new concept came around, the financial sector in this region was dominated by the established order of banks. That list includes Barclays, HSBC, Lloyds Banking Group, and Royal Bank of Scotland Group. All of these entities are well-known on a global scale.

When power is consolidated among very few players, there is often a risk of stagnation. The financial sector has seen little to no major changes affecting either consumers or corporations in a prominent manner over the past few decades. This is in line with how the UK is often perceived as a conservative region, even when it comes to finances. 

To put this in its proper perspective, a shift started taking place in 2010. During that year, the UK government issued its first new UK banking license in 100 years. Due to the associated expenses and time-effort requirement associated with setting up a new UK bank, a lot of entrants have tried and given up during that time span. 

One can argue the desire for banking competition is a direct result of the 2008 financial crisis. The established order of UK banks was deemed “too big to fail”, putting  a lot of stress on the region’s economy. Assisting new firms to enter the banking market become the new priority. The Bank of England created a new unit to guide firms through this process ever since. Several years later, the rise of challenger banks had begun in earnest. 

The era of Challenger Banks

As the established order of banks now faces increasing competition, the industry has changed significantly. The use of modern financing technology practices has received a lot of positive attention. Most challenger banks focus on online-only services, including for the creation of a new bank account or requesting a payment card. 

At the same time, the new entrants offer lower costs and fewer complexities compared to traditional banking. Despite providing very similar business models and services, challenger banks position themselves as the ‘modern banks for the modern era”. Consumerism has also shifted to online-first, thus it is crucial for these financial institutions to cater to new needs. 

Some Crucial Players in the UK

To this date, nearly a dozen challenger banks have received official approval to operate within the United Kingdom. Some of these entities were established in the 1990s, yet they had to wait over 25 years to receive official approval from the government. That further confirms how little has happened in the UK’s financial industry between the end of World War I and the early 2010s.

The following service providers – ranked by their data of establishment – have all received official approval at this time:

Virgin Money (1995)

Tesco Bank (1997)

Aldermore (2009)

Metro Bank (2010)

Shawbrook Bank (2011)

Starling Bank (2014)

Monzo (2015)

OakNorth (2015)

Tandem Bank (2015)

Atom Bank (2016)

N26 (2016)

Other challenger banks have begun making their mark in other countries around the globe.

JP Buntinx
JP Buntinx
JP Buntinx is passionate about cryptocurrencies, fintech, blockchain, and finance. He currently resides in Belgium.


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