The “challenger banks” didn’t really disrupt the retail finance world. I love the banking app on my phone, and there is no doubt that the pressure from new players has led to a better interface, better user experience and a better service. However, when it comes down to financial services, I use it to access checking account, savings account, debit card and mortgage products that are exactly the same as they were a generation ago.
Today, around two-thirds of British adults use a mobile banking app up from a third a decade ago as the incumbents developed and extended their own digital banking services. The challengers have a nice niche for payment management but they are not a replacement for traditional current accounts.
I think it’s time for another review of terminology and I’ve got a couple of suggestions. Let’s standardise this way: a “neo-bank” is something that looks like bank, but isn’t (eg, my Simple account when I first got it and before they were taken over by BBVA, which is an actual bank, and then shut down), whereas a “near-bank” is something that performs a function traditionally associated with banks but isn’t a bank and doesn’t look like a bank (eg, Wise). Then we have the non-bank, which isn’t a bank and doesn’t perform a function traditionally associated with banks but nevertheless embeds financial services (such as an accounts package that uses transactional data to deliver data-driven liquidity). Oh, and then we have challenger banks.
Challenger banks are not a special or different kind of bank. They are just banks. They may be banks, neo-banks or near-banks or non-banks that perhaps address a new niche, or deliver interesting new functionality into an existing niche, but they are not a distinct category. They are banks. That’s it. So when people talk about the “challengers” to the incumbent big banks, I do not see Monzo in my fevered imagination, but Amazon. It’s BigTech that is the real challenger.
Monzo once said that it was on a mission to usurp “legacy” banks, particularly the Big Four of HSBC, Barclays, Lloyds and NatWest that dominate the UK market. They have attracted nearly 10 million customers (not including the British finance minister) and have some £11 billion under management and while they have not yet overthrown the incumbents, they have arguably succeeded in their mission of setting new standards for digital banking; features such as foreign currency transactions and bill-splitting, along with reliable, smartphone-friendly technology, are loved by younger customers.
(They have a way to go to a billion customers even though they are now profitable. But its hard to keep up the fintech pace as you mature. Acquisition costs were £4 a couple of years back, £14 last year and now £25 per net new customer. A high number of customers come from referrals, but they account for a less than a fifth of the growth.)
Snippings 