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Challenger Banks vs. Traditional Banks

challenger banks versus traditional banks

If there’s one element that defines traditional banking culture, it would have to be the reputation of a name.

Anybody that’s seen traditional banking advertised on television, radio, or the internet can understand this fact. 

Traditional banks place heavy importance on customers knowing their names.

They rely heavily on the fact that their customers feel secure placing their life savings and weekly liquid assets in these century-old financial institutions that have been a weekly one-stop-drop for monetary needs. 

Surviving the rapidly changing banking landscape means that they’ve adopted strict protocols and robust, intricate systems that place special attention on protocols and compliance.

There’s no doubt about the fact that these big banks have been able to deliver consistent service. 

However, remaining cutting-edge and keeping up with popular trends has been a challenge.

Truthfully, in a fast-paced digital world that’s focused on tailor-made business plans based on adaptability and precision, these traditional banks are falling behind. 

The previous picture of Wall Street-style banking with a few heavy hitters dominating a winner take all market is all but dead.

The industry has made way for smaller challenger banks that are developing at a break-neck pace and can continue multiplying due to a digital existence with much less overhead cost. 

What Defines a Challenger Bank?

One of the best ways to describe the growing popularity of challenger banks is by comparing it to gas and energy deregulation.

Previously, giant energy juggernauts dominated the gas and electricity industry, ruling with an iron fist and no competition.

However, deregulation allowed smaller energy companies to establish themselves and offer consumers non-traditional plans and alternative ways to save.

These companies who grew out of deregulation offered green energy and customized plans that rewarded consumers for making intelligent decisions regarding their energy consumption. 

Even though no deregulation initiatives were needed to allow these challenger banks to grow, the David vs. Goliath situation is similar.

Honestly, at this point, David seems to be winning. 

What is an SME?

SME is short for Seamless Customer Experience.

Challenger banks deliver a customized bank account that caters to your needs based on past figures, statistics, and other dynamics regarding your business. 

These challenger banks (or fintech startups) offer all the bells and whistles of a traditional bank and much more.

The online financial space is dominated by these challenger banks looking to provide businesses with an account worth a lifetime of dedication in less than ten minutes. 

These SMEs use APIs to deliver customized banking apps that you might think you developed yourself.

The pinpoint accuracy and level of customization that these banks deliver based on data are unreal. 

By answering a few questions about your business and financial goals, these fintech startups develop a customized dashboard molded around your business.

You’re in complete control of your company's financial goals and the steps you’ll take to accomplish these goals. 

From one platform, a business can manage every element of its finances.

Savings, credit, checking, expense tracking, and even employee payroll are handled with a couple of clicks.

Business banking has never been more convenient. 

The Real Game Changer 

One of the most appealing elements of challenger banks is the access to customer service and rich, personal experience.

Most fintech startups offer 24/7 access to a live person via chat, text, or phone call. 

This can be very appealing for a business owner and offers a relationship that establishes a high level of trust from the beginning.

You feel like you’re taken care of when treated like a regular on a first-name basis.

It’s like walking into a bar or restaurant.

The servers already know your favorite dish and have your drink ready before you sit down. 

With challenger banks, you’re a name and not a number.

When you attempt to contact a traditional bank, you’re placed on hold for what could be hours and possibly transferred several times before even accessing a live person.

When you finally make it to this live person, they certainly don’t know your name or have the slightest idea of what makes you feel secure as a customer. 

No Teamwork

One of the biggest problems with traditional banks is their lack of willingness to work shoulder-to-shoulder with you.

Alternatively, they stand over you, watching like a big brother who makes sure you stay in compliance with financial regulations. 

These big banks don’t challenge you to grow as a business owner.

There’s no collaboration or partnership involved. 

When there’s no sense of teamwork with your financial institution, it’s hard for a business owner to make entrepreneurial moves inspired by their bank’s faith in their business plan.

Challenger banks seem to welcome the dreamers, free thinkers, and goal-setters. 

Traditional banks seem to welcome the play-it-safe and old faithful business owners.

There’s nothing wrong with that style of businessman, but the market certainly isn’t bending towards the rules of their game. 

Moving Forward

What does the future look like in regards to the battle of traditional banks and challenger banks?

It might be too soon to tell. 

By no means should traditional banks be counted out.

Their level of manpower, customer base, and pure financial muscle will allow them to remain a staple for decades to come. 

But that doesn’t mean there won’t be a changing of the guard.

At the very least, we’re seeing a two-tiered picture of our banking culture emerging.

These two banking personalities have distinct cultures and characteristics and certainly cater to two different styles of business owners. 

A clear picture is starting to emerge of which bank accommodates whose needs the best.

Will traditional banks bend more to the unconventional style of challenger banks, or will challenger banks be forced to normalize and bend to the will of the establishment if regulation and protocol rear their ugly head.

Let’s see what the future holds.

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