• A new type of bank is emerging. These so-called challenger banks are dedicated to improving on incumbent retail banks’ weakest point — customer experience.
  • Digital-only challenger banks, also called neobanks, focus on digital delivery channels, either online or mobile. While some also offer support from human staff, none of them operate physical branches, catering to consumers’ increasing preference for hands-free banking and saving these new players overhead spending.
  • These players are building their services and products from the ground up, based on consumers’ expectations and needs. This is in contrast to incumbent retail banks, which have tended to build one-size-fits-all services, resulting in limited options for their customers.
  • Now that customers have more options focused on a better user experience, incumbents are being forced to raise their game. Challenger banks are finding ways to deliver banking services to consumers — either by obtaining their own full licenses or using e-money licenses — meaning incumbents no longer set the terms. Given the value of retail arms to incumbents, neobanks are a major threat.
  • Upstarts aren't the only ones in the digital-only challenger bank space. Some incumbents have realized the tide is turning against them, and are either letting these new players leverage their licenses to join the trend, or are launching digital subsidiaries of their own to modernize their brand.
  • The biggest ongoing difficulty for digital-only banks — winning consumer trust and thus acquiring users — is also incumbents’ best chance to fight back. They can leverage their existing brand recognition and trust to promote the success of their own digital subsidiaries.
  • Challenger banks' emergence is about banking moving over to digital. The only question is who will win in the race to transition to this new landscape: independent players or incumbents’ digital subsidiaries.


Beset by a sluggish global economy, turbulent capital markets, and increased regulation after the 2008 financial crisis, many big banks have scrimped on innovation. In doing so, they've failed to keep up with customers, who, in their wholehearted embrace of all things digital and mobile, have become increasingly dissatisfied with financial institutions' ancient-seeming ways of doing business. That has opened the door to a new breed of banks with a heightened focus on the digital customer experience.

A new breed of competitor has emerged that centers its value [...]