Which is better, neobanks or challenger banks?
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Good point about licensing. In addition, the notion of accounts, products, and different kinds of services. It is important to note the origin of term, challenger bank. In UK, the small institutions, such as Metro, challenged The big four including the Barclays, the HSBCs and so on and so forth. Challenger banks maintained that,“we don't need to have a lot of physical presence. All of the banking stuff can be done just over the internet, better services and products can be provided.” So the needs for the small and medium-sized businesses or startups can actually be taken care of without having to go through the hoops. So in my mind, you're looking at options where better service, better products, at a speed that caters to the consumer instead of consumer having to chase the bank.
Neo and challenger banks have grown quite a bit over the past decade. Both offer flexibility and access to a wide range of services originally coming from traditional banks. Neo banks provide a platform—more than just your current account, other things like expense management, automated accounting services, payroll, etc. They provide a a wide variety of add-ons made available on top of traditional banking needs. More importantly, from a service standpoint, they made available these APIs to integrate a lot of the business workflows. Challenger banks are actually also leveraging technology to streamline the banking operations process but they do maintain a limited brick and mortar presence. Revolut, Tandem, Metro are some of the popular ones. What was under one roof with a traditional bank is now being broken down in a way that allows for optimization, efficiency, and most importantly for consumers, a level of flexibility and ease of use. With traditional brick and mortar banking, you may talk to somebody who may or may not give you the service that you want. I typically boils down to total assets being held at the bank.
They may not be incentivized to give you the service that you desire. Alignments may be a skew from yours.
That's a much better way to articulate what I was trying to say. Thank you, Mike.
I think if you look at challenger banks and neobanks, for both their aspirations are to be online, fully digital. I think the main difference is; challenger banks actually have banking licenses, neobanks don't. Neobanks are writing upon the licenses of their underlying partners and trying to be value add. That's just layering on legacy infrastructure and approaches.