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Challenger Banks: all the advantages of online banking

Tech vocation, low costs together with a user experience that is often agile and even attractive winks for the new generations: challenger banks are now a confirmed presence on the market and are proposed, not only as an alternative to traditional banks, but also as an increasing number of users is attracted by the ease of use.

Challenger banks: what are they

Defined as banks that make their services available only through apps and smartphones and therefore providing online banking services, hi-tech and within reach of the phone, challenger banks can no longer be considered a novelty but a presence that both banks and users have learned to deal with. They were born more than 5 years ago and are widespread in all Western countries in which they are acquiring customers at an increasing pace. From 2018 to 2020, the number of users, most of which are millennials, has tripled. These last  are generally not very inclined to use old-fashioned banks, assuming we still have them, and find it perfect to be able to “do everything from a cell phone”. The fact they do not have physical branches is not something that upsets them; they look at the speed and usability of the services and also to what are often very convenient costs.

These characteristics are a real challenge for the credit institutions that have been dominating the market for years, so it is not by chance these realities are called “challenger banks”. It is also not by chance they have triggered an interesting reaction in many incumbents. In fact, there is no shortage of light banking projects, even carried out by the banks themselves, and the competition is open to those who offer a better service, to those who propose a better price, but above all to those who manage to develop a business model that allows a perfect combination of both.

Challenger Banks: how they work

What on the surface seems to be a belligerent relationship between traditional and innovative players in the banking services market is only up to a certain point. That’s because by allowing their customers to operate solely through their smartphones, challenger banks often develop a partnership with a bank so that it can act as a money depository and more. You also need someone to take charge of issues such as regulatory compliance and anti-money laundering processes. Open banking plays an essential role in this regard. By making customer data and bank APIs available to third parties, it enables challenger banks to integrate and develop new services in order to be more successful in the marketplace.

In some cases it also happens that alliances are created with other fintech companies or from the insurtech world itself, in which case the objective of these “lean” and innovative banks is to offer their clients customized and agile services such as platforms for investing or transferring money, which compete with those traditionally offered by banks by offering a customer experience that is often unparalleled. The absence of fixed offices is therefore not at all a sign of willingness to detach from the customer. The idea, on the contrary, is to approach and serve him/her as best as possible with a very personalized offer full of options such as balance forecasts or robo advisory and “challenging” economic (zero commissions and zero expenses) to keep him permanently loyal.

Challenger Banks: what are the advantages

Challenger banks have begun to gain customers in the United Kingdom and Germany, but they have not been slow to gain success in Italy as well for the obvious advantages they offer.

One of the first aspects of these neo banks that strikes you is the attractive user experience that often exceeds in aesthetics and agility that of online banking banks, or at least this was the case initially, attracting above all the younger generations.

They are also agile from a contractual point of view, the offer is clear and simple, more transparent, and the client does not perceive difficulty in understanding conditions and rates.

Also fundamental is the aspect of IT security, which is particularly taken care of by challenger banks, which implement advanced security measures, showing off biometric recognition systems, facial recognition or fingerprints to improve privacy.

No less important today, above all, are the marketing strategy and the methods of maintaining relations with the customer base. Instead of emails and phone calls, more innovative and smart channels such as videos and social networks are preferred, along with a marked propensity to listen to feedback.

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