How Are Challenger Banks Redefining the Fintech Landscape?

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Challenger bank is another name for a neobank or a digital-only bank. Challenger banks are redefining core banking experiences with features and functionalities that are built around customers’ convenience.

Are challenger banks here to stay and revolutionize the banking industry? Or are they a fad that will be lost to the sands of time? Let us find out.

What Brings Challenger Banks into the Limelight?

Challenger banks bridge the gap between customers’ expectations and traditional banking experiences. They do so by providing a whole host of features to make various kinds of financial transactions.

Given the rate at which this banking concept is evolving, fintech experts are speculating that challenger banks may eclipse traditional banks in the future.

Challenger banks operate without a physical branch. Everything from opening an account to issuing cards and money transfers and making deposits takes place online.

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They Provide the Solution for the Need of the Hour

Traditional banks have been around for centuries. People trust them with their money. However, the pandemic has changed a lot of things. Traditional banks are struggling to keep up. Generally speaking, their legacy systems are weighing them down. This makes it difficult for them to meet the growing demands of their tech-savvy customers.

This is where challenger banks swoop in to provide a better solution. With a digital-only presence, challenger banks allow their customers to make all kinds of transactions without requiring any manual intervention. Moreover, the concept is gaining traction, and more neobanks are entering the space.

This is a fantastic opportunity for fintech entrepreneurs. The licensing and compliance requirements are minimal. What’s more, all the tools, technology, and support you need to launch your challenger bank are readily available. You can even seek out a BaaS provider (Banking as a Service) that will build a secure, user-friendly platform for you that delivers core banking experiences to your customers.

What Are Neobanks’ Competitive Advantages?

Neobanks are relatively new. What’s more, they are going against a system that has been around since long before the advent of the internet. So, what advantages do challenger banks have?

While traditional banks have the capital and a staunch customer base, challenger banks have radical innovation on their side. They can produce new concepts. They provide features that serve their customers better than traditional banks do. But when it comes to convenience versus trust, it is hard to say who wins. As neobanks gain traction in the fintech landscape, trust among potential customers grows as well.

Challenger Banks Practice Intelligent Targeting

Traditional banks operate with the belief that everyone needs a bank account. But trying to please everyone doesn’t leave much room for innovation or updating their legacy systems. So while traditional banks are winning, they are bearing a huge opportunity cost.

On the other hand, neobanks target specific demographics they deem fit for their services. Here’s a general overview of what their target audience may look like and how they can attract customers.

They Are Environmentally Conscious

Neobanks are fully digital. They don’t have a physical presence and there is virtually zero paperwork. All transaction records are digital and stored securely somewhere on either private or cloud-based servers. This is one of the many reasons why environmentalists gravitate toward neobanks and encourage others to as well.

But it doesn’t stop here. Some neobanks targeting the eco-conscious are also offering cash back to customers who buy from eco-friendly stores.

Neobanks Aim Their Services Toward Low-Income Individuals

When every penny counts, individuals and families in lower socio-econonomic conditions often do not make enough money to maintain a traditional bank account. That is primarily because traditional banks levy all sorts of charges for using their services. For example, traditional banks may charge fees for SMS alerts, debit and credit card charges, and more.

This is where challenger banks see an opportunity. Their services and products are geared toward low-income communities. These people also deserve a bank account where they can keep their hard-earned money safe. They also deserve a chance to explore investment opportunities where they can increase their money.

They Target Gig Workers

Gig workers have a tough life. Sometimes they go weeks or months without getting paid. All it takes is one unexpected expense to push them over the edge.

While traditional banks may not be accessible for gig workers, neobanks have options to address their specific needs and challenges. For example, they face such challenges as irregular income, poor credit scores, relatively high insurance costs, and burdensome tax requirements.

Young Professionals Love Challenger Banks

Weighed down by outrageous student loans, young professionals often struggle with high debt-to-income ratios. As a result, it becomes increasingly difficult for them to maintain a quality lifestyle like their more well-off peers. Moreover, if they seek to apply for another loan, traditional banks often turn them down.

Neobanks came into the picture to address these concerns. In the process they are building a loyal customer base in the process.

Launching a Challenger Bank Is Easier Than Ever

With the government’s nod and low entry barriers, launching a neobank in 2022 is easier than ever before. There are compliance regulations that are keeping these banks from disrupting the industry. However, there is plenty of opportunity for challenger banks to become the primary financial institutions of the near future.

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