The Lessons that Traditional Banks Can Learn from Challenger Banks

Due to the rise of challenger banks over the last few years, more established financial institutions have been under pressure to deliver a customer-centric experience based on a technology-driven approach. Yet, the growing success of these new banks can also provide their more traditional competitors with a valuable blueprint for navigating the demands of the modern payments industry.

The Challenger Bank Model

Challenger banks offer an appealing alternative to the conventional high street banking experience. Rather than making their presence felt with bricks and mortar branches, the challenger banks offer a convenient, online service that customers access via their smartphone or another device. With a host of useful tools such as spending tracking, cashback, currency management, notifications and more, these new banks allow customers to enjoy control over their finances with unprecedented ease of use [1].

The markets reflect the growing influence of these new institutions, too, with London based Revolut being valued at £24 billion in its last funding round [2], an amount that puts its worth at greater than the traditional bank NatWest. Elsewhere, Rocker in Sweden has achieved $48 million in equity funding in its first eighteen months of operation. US-based Chime is now worth $14.5 billion and is IPO-ready. With Revolut boasting 14 million customers, it’s clear that traditional banking institutions must look to these newcomers and learn from their rapidly growing success.

Focus On Technology

Challenger banks have proven that they listen to what the customer wants. With strong branding, and a message that they provide a customer-centric banking experience, these banks seek to tempt those traditional bank customers away from their old institutions. A key element of the attraction of challenger banks comes from their technology-centric approach, meaning traditional institutions have acted to replicate their offering. This has meant vast improvements in the online and mobile app banking offerings in recent years. However, there are still many ways for banks to modernize further. One way for established institutions to learn from their challenger rivals and embrace innovation, is to focus on providing biometric authentication methods. Rocker have recently become the first challenger bank in the Nordics to launch a full scale biometric card.

The Benefits Of Biometric Authentication

Whilst the use of cash has declined in recent years [3], experts predict that contactless payments will continue to dominate the way transactions are made for at least the next decade. This means that these cards represent an ideal opportunity for attracting and retaining customers. By adding a cost-efficient, easy to use fingerprint sensor to their payment cards, banks can deliver the peace of mind, speed and convenience that the modern consumer demands, alongside excellent security benefits. Biometric authentication technology is extremely effective at preventing fraudulent use of a contact-free payment card, with the latest generation of fingerprint sensors proving to be twice as secure as a PIN authentication approach.

This makes biometric authentication the ideal way to instill peace of mind in customers, allowing them to make contactless transactions with total confidence. By offering this speed and convenience, along with a digital-first approach, traditional banks can learn from the challengers—and succeed.


[1] IDEX source material