Statrys Payment Platform Ecosystem

What are Challenger banks? Sticking it to the Man

Statrys Team
Published: 13 Aug 2021

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     Challenger banks are called challenger banks because they aim at challenging the traditional banks which are dominating the market.

    They utilize new financial technologies in order to offer better services to their customers.

    For instance, they provide services on mobile phone apps instead of physical branches like the traditional banks.

    They also provide benefits that traditional banks do not provide.

    Challenger banks first started in the UK with companies like Virgin Money and Metro Bank as examples.

    In the last ten years, there have been more new challenger banks.

    Currently, the leading challenger banks are N26, Monzo, Revolut, Mybank, and Amicus. 

    Challenger banks = Neobanks?

    Challenger banks can be considered neobanks but not all neobanks can be considered challenger banks.

    To be a challenger bank, it is a must to obtain a banking license.

    Nonetheless, it is not a must for neobanks to have banking licenses.

    Therefore, a challenger bank can be categorized as a neobank but a neobank cannot be a challenger bank without a banking license.

    Both challenger banks and neobanks operate online in a digital format.

    Types of challenger banks 

    Mature Challenger Banks 

    Even though the term ‘Challenger Bank’ is relatively new, challenger banks have been around for quite a while.

    Some challenger banks are already mature and have become mainstream in the market.

    The challenger banks that have gained reputation and users are called mature challenger banks.

    New Challenger Banks

    New challenger banks refer to challenger banks that have been operating for 3 years or less than 3 years.

    This type of challenger bank has innovative and fresh approaches.

    They usually have their own unique features to attract customers.

    For example, Monzo Bank, which has around 4 million users, is famous for its budget planning features.

    Other examples of this type of challenger banks are Tandem Bank and Starling Bank. 

    High Street Challenger Banks

    High street banks mean retail banks.

    They are the traditional banks with physical branches in different cities.

    High street challenger banks are challenger banks that are offshoots of traditional banks to avoid the competition between high street banks and challenger banks.

    Examples of high street challenger banks are Virgin Money and TSB. 

    Shari'a challenger Banks 

    Sharia banks are banks that follow the rules and regulations of Islamic finance.

    Therefore, Sharia’s challenger banks are challenger banks that follow the rules of Islamic finance.

    Rizq is an example of a Shari'a challenger bank.

    Click here if you are interested to know more about Shari'a banks.

    High street banks Vs. Challenger banks 

    Challenger banks offer more functions in contrast to high street banks.

    Challenger banks often make use of financial technologies to compete with traditional banks.

    In order to attract customers, they provide functions that traditional banks do not usually offer.

    For example, some challenger banks have added functions like budgeting, expense tracking, and spending notifications.

    High street banks generally offer basic services like saving accounts, checking accounts, debit cards, and credit cards.

    Challenger banks generally offer better customer service than high street banks.

    Since challenger banks lack a physical presence, they need to compensate for it with better customer service.

    Challenger banks Monzo and Starling bank are famous for their excellent customer service.

    On the other hand, high street banks like HSBC and Barclays only have average customer service.

    Their customer service hotlines are not as reachable and only available during certain hours. 

    Compared to high street banks, challenger banks have better savings rates.

    As challenger banks have lower running costs, they are able to offer higher savings rates than high street banks.

    For example, the US-based challenger bank Chime offers 0.50% APY while high street banks offer 0.04% APY.

    Therefore, challenger banks are good for people who want to save money. 

    Challenger banks are also a better choice for travelers.

    Many challenger banks provide low-fee or no fee for foreign currency transactions.

    Customers can also withdraw money overseas from ATMs without paying any charges.

    Take Curve as an example, Curve supports various currencies and fee-free foreign spending.

    In contrast, HSBC charges on overseas spending and ATM withdrawal.

    If you are a frequent traveler or you need to send money abroad regularly, a challenger bank is definitely more suitable for you. 

    Challenger banks have their advantages but it lacks a physical presence.

    Some people prefer having physical assistance and real-life services.

    High street banks have branches everywhere.

    Customers can find one easily when they need help.  

    Some people find high street banks more reliable as they have a long history and better reputation.

    Most challenger banks were founded after 2008 while many high street banks have been running for more than 100 years.

    For example, high street bank Barclay has more than 300 years of history and HSBC has more than 150 years of history. 

    Are Challenger Banks safe? 

    Challenger Banks can be considered safe because they have banking licenses.

    However, challenger banks are relatively new and some still find challenger banks risky.

    As a result, some challenger banks partner with traditional banks to gain better financial protection.  

    In the United Kingdom, challenger banks have to obey the same rules and regulations as traditional banks.

    Most of the challenger banks are protected by the Financial Services Compensation Scheme (FSCS).

    Customers of challenger banks protected by FSCS are covered up to £85,000 if their banks crash. 

    Neobanking as an Alternative

    Challenger banks aren't the only way to stick it to the man.

    Kicking Traditional banks is easy if you actually choose to go unbanked.

    If you're looking for a true way to get out of traditional banking, consider opening a business account with a business account provider who isn't a bank.

    The benefits?

    Your money in an unbanked neobank is actually still saved within a segregated bank, but it's not loaned out like a normal client account.

    You gain the benefit of receiving corporate perks for your account that you wouldn't otherwise receive from a traditional bank.

    Open a business account with Statrys today, and stick it to the man.

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    Statrys Limited is licensed as a Money Service Operator (No. 19-02-02726) in Hong Kong. Statrys UK Limited is a Small Payment Institution (FRM: 911226) registered with the Financial Conduct Authority in the United Kingdom. Statrys UK Limited (FRM: 902805) is a registered agent of PayrNet Limited (FRM:900594), an Electronic Money Institution authorised by the Financial Conduct Authority in the United Kingdom under the Electronic Money Regulations 2011 for the issuing of electronic money. Trade financing services are offered by our partner, Velotrade Management Limited, regulated by the Securities and Futures Commission of Hong Kong (CE Ref #BJL007)