How Have Challenger Banks Changed the Payments Industry?

The payments industry has seen rapid changes over the last few years, with the decline in the popularity of cash transactions being accelerated since 2020 and the emergence of the COVID-19 pandemic [1]. Along with this shift in our spending habits, the financial sector has seen the rise of so-called “challenger banks,” which – as their name indicates – are set to challenge established financial institutions.

The Rise of Challenger Banks

Challenger banks, or neo banks as they’re also known, have positioned themselves as a popular alternative to the long-established high street stalwarts. They deliver a more customer-focused experience along with the latest banking innovations. Without setting up any bricks and mortar branches, challenger banks are accessed via mobile technology, offering their customers on-the-go convenience that makes for a perfect fit with modern lifestyles. These challenger banks are actively targeted to those who have previously held accounts with the big corporate banks, and so far, millions of customers have already made the switch.

London based challenger bank Revolut has 14 million customers globally and was valued at £24 billion in its last funding round [2] which sets them far ahead of household name NatWest in terms of fiscal value. Although neo banks started out offering personal accounts, many of them now offer specific services, such as Monese, which specializes in business current accounts, as well as expanded offerings like credit cards and loans. With expansion throughout the European markets in their sights, this sector of the financial industry certainly poses a significant challenge to the old guards of the banking world.

The Evolution of Payment Habits

A large part of the appeal of these challenger banks is their understanding of the current payment trends. The use of cash has become less and less popular since 2017, but the importance of contact-free transactions during Covid-19 meant that this trend accelerated from 15% to 35% in 2020 [1]. As a result, the contactless smart card has emerged as the dominant payment tool. The challenger banks understand this and have been quick to focus on providing their customers with easy payment methods along with holistic financial tools, including spending tracking and notifications. While traditional banks have hastened to follow suit, they must also compete with their new competitors’ strong branding and technology-driven experience.

The New Contactless Smart Card

However, an opportunity for traditional banks to gain top-of-wallet status is adopting the latest contactless smart card technology. By opting for an integrated fingerprint sensor in their payment cards, banks can provide superior security benefits, whilst facilitating the spending tracking and other features that customers demand. The contactless smart card delivers the speed, convenience, and security that customers look for, enabling traditional banks to position themselves as true rivals to the new challengers.

Now is the time for banks to act and secure their future in the competitive payments industry. Including fingerprint sensors in contactless payment cards is the most effective way to attract modern customers and bring them peace of mind while delivering a host of excellent benefits, such as convenience, speed, and security.