Challenger banks shift from growth mode to focus on profitability
- Challenger banks around the world have sprouted up like mushrooms after the rain.
- As they mature, neobanks go through a lifecycle where they shift from growth at all costs to focus on profitability.
There has been a significant lift in the number of challenger banks launched over the past year. It's estimated that there are 319 challenger banks around the world, according to research from Exton Consulting.
But the growth in new challenger banks appears to be plateauing as existing players shift their focus away from growth-at-all-costs and to profitability.
The growth in challenger banks initially centered around Europe, which launched N26 and Revolut. From there, it's become a global phenomenon.
Following a “scale first” strategy, a growing number of the challenger banks have gone international, aided by EU passporting mechanisms. Currently 43 challenger banks (~17%) are operating across geographies, with Revolut and Transferwise being the most global examples operating already in 36 markets and plans to expand further in the near future, according to Exton's research.
Revolut intends to launch in Brazil, Canada, Hong Kong, New Zealand
and the UAE, and Transferwise recently expanded its global card issuing partnership with Mastercard.
As challenger banks mature, they seem to go through a similar evolution. Beginning with a minimum viable product, they're all about growth. Initial features include FX, rewards programs, and a debit card/app combination. Startups look for the features that enable the most growth. From there, once a challenger bank has clients, it typically begins to roll out features it can monetize, like premium accounts. Lastly, and this is the stage many of the first challenger banks are entering, they focus on profits. They get into lending, roll out features that are more lifestyle oriented, and start rebundling banking features by going upstream to investments.