The financial sector has seen major developments since technology has advanced. For instance, there were major changes within the industry following the industrial revolution as the circulation of money within an economy rapidly increased among the masses. However, we may be seeing an even bigger revolution within finance: the rise of challenger banks and fintech.
What are Challenger Banks?
Unlike your usual commercial bank that has hundreds of high-street branches across the nation, challenger banks are much smaller and much less abundant. They tend to offer modern technology to accommodate and facilitate financial services unlike normal retail banks that stick to traditional methods of servicing their clients. Some have even gone as to operate only online without a single branch. But how are they able to do this?
These banks are heavily digitized- loans, overdrafts, financial information may be all available via an app on the phone. Staff continuously work on offering 24/7 customer service and financial help to those who may need it and the app often has a friendly user interface that allows for transactions and payments to take place both easily and securely. As they are banks after all, the government regulates them just as they regulate commercial banks, thus they offer all the same services, just digitally.
How are They ‘Challenging’ Traditional Banking?
Challenger banks such as Starling Bank, Monzo or Metro Bank often have much lower costs than traditional banks. This is because they do not require the heavy capital needed to own branches and operate them, including payments for staff, maintenance and more. This lower cost is often associated with further innovation, since the extra cash can usually be used to fund technological development of their platform.
Additionally, the current situation regarding COVID-19 has led to the rapid growth of such banks. Since most consumers have been unable or unwilling to travel to their local branch, challenger banks have become a much more viable option to some, who prefer to bank in the comfort of their own homes.
Finally, challenger banks offer services like no other banks. These include budgeting tools, notifications and text messages on spending or on opportunities for investments and ease of transmission of preferences for the allocation of personal savings and income. They tend to offer commercial deals with their cards and compete against the more mundane idea of traditional banking with a fun and vibrant branding.
The Issues with Challenger Banks
Challenger banks may seem to be the future of banking, but with everything that’s good, there’s something that’s bad. With the case of challenger banks, it doesn’t take much to realise that there are serious complications with holding the entire financial operation of banking online. Limitations include identity checks and lower levels of protection. Although the prospect of this new and bright way of banking may seem great for many youngsters, it seems probable that those who become wealthier will switch to the more secure ways of traditional banks.
Are they for me?
Most likely! Regardless of wealth and age, the simple technological interface offered by these new banks is a serious positive that can be really useful to most. If you are concerned with the downsides of challenger banks, why not have multiple bank accounts? You can mix and match with traditional banking and the new modern banking of fintech, just as investors never put all their eggs into one basket!
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