How the Challenger Bank Landscape Will Change in 2018

The term “challenger bank” has evolved. It used to mean any financial institution that wasn’t one of the high-street banks, but it has now moved on as different entrants to the market have challenged the landscape. Bobsguide interviewed Sarah Jackson, Director of Equiniti Credit Services to discuss what 2018 has in store for challenger banks.

 How should we define the term challenger bank today?

How do you identify a challenger bank? One suggestion is that they all share the need to operate differently, with far greater agility than their traditional high street counterparts.

Is traditional banks’ increasing digitalisation a positive or negative development for these challenger banks?

The appearance of challengers has forced high street banks to digitalise perhaps sooner than they otherwise would have. But this is simply the way that this (and most other) markets are evolving, and the challengers have seen it coming. The challengers will always lead the drive for increasing digitalisation because they aren’t encumbered by legacy systems that hinder modernisation – they can be truly fleet of foot. While traditional banks have been pushed into the digital space by competition, the challengers are there by choice.

Is traditional banks’ competitive advantage over challenger banks now solely trust? Is this even a competitive advantage anymore?

Trust and reputation still represent a significant competitive advantage. That’s why the majority of people still bank with the big high street names.

However, the market is moving towards a more holistic approach, because customers now expect it all. Trust and reputation alone aren’t enough; consumers want an excellent customer experience and innovative new products as well.

What are the key next steps for challenger banks to scale whilst remaining agile?

 Maintaining a laser-like focus on innovation, together with their own differentiated value proposition, will enable these banks to establish themselves as long-term contenders and serious competition to the high street giants.

 What is the biggest mistake that challenger banks make?

 Trying to do it all themselves! As traditional high-street banks have demonstrated, delivering financial services at scale does not lend itself well to business agility, particularly in this age of heightened regulation.

Will web giants such as Facebook and Amazon enter the banking space and how will this alter the landscape?

 Facebook has already made its first forays into peer-to-peer payments in Europe by acquiring an e-money license from the Central Bank of Ireland, so the whole ecosystem is waiting to see what impact that has. It may be that the Facebooks and Amazon want to provide certain third-party services from the outside looking in, rather than compete with dedicated banks and financial institutions, be they traditional or challenger.

 Will today’s challenger banks to continue to be successful in the main, or will many die out or be reliant on consolidation to survive?

Some consolidation and failures are inevitable, there are bound to be some casualties in any marketplace. However, I think that many of the same names will still be operating in five years, although many will have evolved, and expanded outside their currently well-defined niches in order to widen their appeal.

Will the challenger bank landscape look the same in twelve months?

There have been plenty of new entrants in the last year, so maybe that is what we will continue to see going forward.

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