Challenger Bank Is The New Coopetitive Competitor
challenger bank Digital Payment Digital Transformation FinTech

Challenger Bank Is The New Coopetitive Competitor

By Rajarshi April 18, 2022 - 288 views

Challenger banks have witnessed phenomenal growth over the last few years, becoming marshals of the global fintech space. These banks have set the cat amongst the pigeons in conventional banking globally with more innovation, digital-led offerings and unique and multi-dimensional customer service. 

With a customer is king template and the spirit of coopetition or positive collaborations in the space, challenger banks could well be the fast-growing Davids amidst banking Goliaths today.

A Little About Challenger Banks

Challenger banks are intrinsically technology companies, tapping their expertise and software to streamline and digitize conventional retail banking. These entities are strongly leveraging digital channels for distribution (usually mobile-based) to provide highly competitive services in the retail banking segment. These include savings and checking accounts, credit cards, insurance and even loans.

How Do They Differ From Their Regular Peers?

Retail banking has always emphasized the presence of a branch and in-person experiences, while challenger banks are always tech-driven, depending on desktop/mobile platforms. They harp on customer experiences and continual improvement, targeting those desirous of online banking without visiting any retail point.

  • Challenger banks are gaining ground among customers who are shying away from conventional bankers and institutional players post the worldwide financial crisis. They are posing a literal challenge (true to their name) to the business models of retail bankers.
  • This is being done through low and transparent fees charged to customers, faster service offerings and superior user experiences via 24-7 agile digital platforms, which can give legacy banking software a run for its money.
  • Challenger banks are also reaching out to under-served or un-served demographics (for conventional retail banks), including those in lower-income groups or without credit histories, for instance.

The Digital Banking Revolution And What It Means

  • Reports highlight 240,000 bank branches throughout Europe in 2019 when digital banking was still in its nascent stages.
  • Yet, challenger banks are expanding with the premise of people moving completely towards mobile and digital banking in the future.
  • Digital banking has broken records ever since, with branch counts in Europe reducing to 165,000. It could well go down even more over the next few years, per domain experts.
  • Some reports forecast how 3.6 billion global citizens (almost 1 out of 2 adult individuals) will use digital banking by 2024, across desktop and mobile channels.
  • The United Kingdom (UK) has already embraced the Digi-banking wave and more countries in the continent are in the queue.
  • The coronavirus outbreak added fuel to the fire, leading to the closures of several retail banking branches and accelerating the adoption of digital banking platforms. Global usage of mobile payment and banking apps went up by 26% in H1 2020, per surveys.
  • Challenger banks are feeding off this digital shift, while conventional bankers continue maintaining branch-based models, developing their online offerings simultaneously.

How Coopetition Is The New Mantra For Challenger Banks?

What is this new keyword coopetition that is being widely discussed at a global level? What has it got to do with worldwide fintech and challenger banks? The word fuses the terms competition and cooperation. This means that challenger banks are partnering with conventional banking institutions for building new services, products and industry solutions.

Many industry stakeholders feel that this is the best future pathway for the banking and financial services sector in terms of innovation. They highlight collaboration and teamwork as necessary virtues for creating a future ecosystem that serves customers even better and in more innovative ways.

Key Schools Of Thought And Developments 

  • The collaboration will ultimately unearth higher consumer benefits, and feel industry veterans.
  • Fintech players/challenger banks and conventional banks may not always be competing in the same segments.
  • They may have different customer sectors and demographics.
  • This may help in building newer avenues for feeding off each other, stimulating a spirit of continual learning and growth.
  • Coopetition may not only encompass teaming up to build new products and services but also knowledge exchange via webinars, forums, industry conferences and best practices.
  • Some feel that competition and coopetition represent similar ideals. Businesses will always have goals putting them directly against other entities in the same industry. However, this does not hinder collaborative work in areas beyond the competition. Some of these areas highlighted by experts include enhancing overall financial inclusion for instance.
  • Several challenger banks are already partnering with conventional peers for enhancing outcomes for consumers, including more people who would not normally fit into traditional lenders’ profiles.

Some Other Things Worth Noting

  • Some industry experts also opine that almost 1/3rd of the millennial generation may have already switched to digital banks as primary providers of checking accounts. Hence, they claim that digital entities are not challenger banks anymore but are a part of the mainstream.
  • Some claim that this indicates how digital banks have already won the battle against their traditional counterparts while some indicate this as a natural response to the shifting demands of consumers.
  • Some feel that banks and institutions should sync their future goals digitally with building experiences for consumers. More than 50% of people will only work with institutions offering digital account opening in the future according to these experts.
  • Many flags the role played by legacy vendors in the global banking sector with outdated technological expertise and acquisition-driven approaches toward future innovation.

The Core Takeaway

The whole world is closely following the next phase of the ever-evolving relationship between conventional lenders and fintech players (challenger banks). 

How will it pan out? Can conventional lenders adopt a more agile mechanism towards shifting consumer preferences, teaming up with challenger entities to speed up their procedures, include more people into the portfolio and build innovative experiences for customers?

Can coopetition work in such a hotly contested space? Will this become a successful operational model for the BFSI sector globally? 

An insular way of doing business is no longer possible technologically at least. If you keep that aspect in mind, think how Apple offers Google apps in its App Store or how Microsoft has gone ahead to include not just the Windows OS for its PCs but rival hardware too. 

It is just that conventional retail bankers have been late starters in this arena. However, coopetition (driven by the rapid emergence of challenger banks) could well drive the next big growth phase for the industry. And yes, the end consumer stands to gain the most. That is a mission worth aspiring for.

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