After revolutionising banking, Challenger banks find themselves at a pivotal moment. Following untold growth, now is the time for profitability, longevity and sustainability.
Here are the key trends that are going to affect all Challengers as they start their next chapter.
1. Challenger banks are here to stay
From 2014-2020, the Challengers’ mission was creating a new type of mass-appeal banking. Really, those first releases from N26, Monzo and Starling just needed to look better and provide a genuine alternative. That is how low incumbent banks had set the bar. It was like the first Teslas. Electric cars had such a bad wrap, it wasn’t too hard making one that really stood out.
Of course, both the Challengers and Tesla went a lot farther than that. They didn’t just raise the bar – they took it to unimaginable new heights. If anything, both have been too successful. Now both incumbent banks and car manufacturers have finally wised up and decided to join them in the 21st century.
But it is too late. Now, those initial Challengers have moved beyond making money solely from interchange rates and are fully established companies with global workforces. Mission “mass-appeal” accomplished. Challengers are now part of the finance furniture and they are here to stay.
2. Challenger banks for all audiences
Like I have said, the 2010s were all about mass-appeal. But as we go through the 2020s, the emerging theme is broad-appeal but for targeted audiences.
By this I do not just mean banks like Starling offering different types of business accounts from corporations to sole traders. I am talking about banks created to speak to the needs of a specific community.
I.e. Daylight, a bank aimed at the LGBTQ+ community, and Fardows, a Halal Islamic Challenger.
But this is not just about marketing—creating a bank and saying it’s for a certain audience. It is about creating genuine features that appeal to different communities. For example, Daylight provides debit cards with an account holder’s chosen name, no matter what their ID says. While Fardows allows account holders to borrow money in a completely halal-compliant way.
It will be especially interesting to see how the larger Challengers react to this.
3. Embedding value-add products is big business
By embedded value-add products, I mean additional financial services added into a bank’s offering that their customers can access. Things like insurance, loans, cross border payments or investment services. For anyone looking to create a bank or improve an existing bank’s services, this can now be done with a simple integration via APIs with companies like AAZZUR. Or innovative Challenger banks who have built their own tech stack can embed their own products.
At AAZZUR, we work with banks and fintechs on both sides of the table. We help them expand their offering via the ecosystems of financial products we’ve built, while also helping them earn revenue by embedding their own products into our ecosystems for other banks, fintechs and digital businesses to use.
Challenger banks are famously unprofitable. Embedded finance – as this is known – can change that.
4. Banking can now be extremely personalised and contextual
Thanks to the rise of Open Banking – and the opportunities afforded by embedded finance – Challenger banks now have the options to make their services hyper-personalised.
Think how Google monetises search and social media monetises relationships. Challenger banks will soon be doing the same thing but with spending data. Think of it this way, if you purchase a flight or a hotel, chances are you’ll also be in the market for travel insurance, holiday money, budgeting tools and everything else involved in a trip abroad.
Challenger banks can now offer these options right at the point of need, triggered by specific purchases, emerging spending patterns or even geo-location.
It is no wonder BCG predicts banks that adopt this type of personalisation can expect to see lower rates of churn, higher sales and annual revenue uplifts of 10%.
5. Sustainability is important
Climate change is a big problem. We all know this now. In the EU, nearly everyone has taken at least one action to combat it, with over a third even changing their own diets to help the cause.
Not surprisingly, Challenger banks are being launched specifically with the environment front and centre. Banks like Tomorrow and Getinsha both offer environmental products that go much farther than just carbon offsetting.
But not many banks have the time or money to create an entirely new sustainable way of doing business. Again, this is something embedded finance can help with, allowing banks to easily embed the services of some of the most innovative sustainability fintechs around into their user flows.
Think instant investments in NGOs, inbuilt blacklisting of un-eco merchants, sustainability scores, rewards for environmentally friendly behaviour and more.
More and more people want to make their finances more sustainable. Around 60% of consumers are looking for greener banking. From both a moral and business standpoint, banking cannot ignore sustainability for much longer. Those who embrace it now will benefit financially now and for years to come.
About the Author:
Philipp Buschmann is Co-Founder and CEO at AAZZUR, a one-stop-shop for smart embedded finance experience. Recognised as a rising star in the FinTech space, AAZZUR’s mission is to build profitable banking whilst at the same time empowering consumers to have access to better informed financial choices.
Philipp is a serial entrepreneur with extensive experience of working in Challenger Banking, Financial Services, IT and Energy across the world. He took one of his business’s public – Ignis Petroleum was publicly listed in the US and Germany.
Having started as a developer in Financial Services, Philipp has first-hand experience of the banking revolution from both a technology and financial perspective. His interest in behavioural economics helped inspire AAZZUR’s revolutionary work on customer centricity in banking.
AAZZUR build better and smarter banking with a one-stop-shop for embedded finance. Their data-driven embedded finance experience platform enables businesses and banks to better understand and support their customers by offering them tailored financial services as and when they actually want and need them. All seamlessly handled via AAZZUR’s smart integration within just one app.
From budgeting tools to insurance and carbon offset programmes, AAZZUR’s capabilities include personalising existing mobile and/or web apps with smart embedded finance blocks. This ecosystem of services can help challenger banks to create loyalty, increase revenue and ultimately become a valuable and profitable business. AAZZUR is also helping neobanks and businesses to create entirely new mobile banking apps from scratch within weeks thanks to their modular smart platform.