New banks

‘I’m reading Blitzscaling right now’: Consumers are driving the growth of challenger banks in the US and Europe

  • Senior execs from Revolut, N26, and Chime joined us for a webinar this week.
  • All have millions of customers and it feels like they're just getting started.
‘I’m reading Blitzscaling right now’: Consumers are driving the growth of challenger banks in the US and Europe

It’s more pull than push when it comes to growing a new challenger banking brand. Some of the top firms don’t even have a dedicated marketing function, relying instead on their users to spread the word. Millions of consumers have opted-in to open accounts at firms like Chime, N26, and Revolut.

Senior executives from these three fast growing neobanks joined Tearsheet earlier this week to talk about trends in digital banking. A common thread echoed by each participant was the excitement around new user acquisition.

Consumers seem to be driving much of this move toward challenger bank adoption. And for many new account holders, it’s about the challenger banks’ modern user experience that more closely resembles other popular apps like Airbnb than a traditional bank.

“Challenger banks deliver a great user experience, consistent across the suite of products they offer,” said Dan Westgarth, general manager of North America for Revolut.

“I compare that to my UK bank, where I have a debit card, a checking account and a mortgage. The user experience that links those products together is incredibly poor. There are inconsistencies in the data, the bank systems don’t connect and pass data as they should, resulting in a terrible experience for the user. This pushes consumers toward the challengers.”

Traditional banks have invested billions of dollars in strengthening their own brands. And in finance, trust sells. But what’s interesting here with the challengers is how trusting new customers are to their brands, in spite of the fact that these companies have only been around for a few years.

“Brand and trust are key drivers here,” said Nicolas Kopp, N26’s US CEO.

“People have lost trust in traditional banks and they’re very confident in trusting newer technology players. The new reputations of challenger banks — as well as their new vibe and feel— is an advantage for us.”

But a slick user interface only goes so far. Traditional banks are catching up and improving their apps.  “You can go to the App store and Chase has 5 star ratings,” said Chris Britt, co-founder and CEO of Chime.

“The banks have invested billions of dollars to improve their technology and user experience. It’s not that bad. Just thinking challenger banks will win because they have a slick user interface is missing the point.”

If technology and design is on par between incumbents and the challenger banks, then the upstarts seem to be doing a better job communicating their value proposition: namely, that they’re more partner than adversary to their clients.

“I think there’s a huge portion of America that is struggling with their traditional banking relationships,” Chime’s Britt said. ” We’re focused on the needs of a huge portion of America that struggles with the fact that how banks deliver and price their services is adversarial and punitive with fees.”

Customer feedback and sentiment is a key driver in challenger bank’s product development cycles. These institutions spend a lot of resources taking their customer’s temperature. Without physical branch infrastructure, challenger banks lack face time in front of their clients. They make up for it in different ways.

“We have a Slack channel where we share customer feedback from members,” said Britt. “I probably read 50 to 100 comments every day. We’re active on social media, too, because we can’t rely on physical branch infrastructure.”

Revolut first launched in the UK, where instant transactions, payments and notifications were becoming table steaks for challenger banks. It soon saw an opportunity to spread that level of immediate gratification to other markets.

“It’s pretty common in the UK but not in the Eurozone,” said Revolut’s Westgarth. “So, there’s an excitement when we bring that there. I think it will be the same when we get to the US. I don’t think there’s real instantaneous transaction infrastructure in banking. People are used to using third party apps, like Venmo, for that. We’ll provide a financial ecosystem that allows customers to transact instantaneously, no matter what financial product they want to use.”

Monitoring and responding to customer feedback is just half the puzzle. Top technology firms use this customer feedback loop to inform product decisions. Challenger banks the same methodologies top technology firms to in an effort to create products people love and use.

“The key here is that we approach consumer facing and app development from a consumer tech angle, not like a traditional bank,” said N26’s Kopp.

“It’s all about fast iterations, getting customer feedback on what we’re developing, and developing the product in small, incremental steps.

4 charts, New banks

New study: Challenger banks overtake traditional banks in customer satisfaction, in 4 charts

  • For the first time, digital banks have jumped to the front of the pack in customer service metrics.
  • A new survey shows just how normal digital banking has become.
Michael Deleon | April 16, 2019
New banks

Challenger banks face challenges with global expansion

  • Challenger banks are bright, shiny financial toys.
  • Will they lose some of that glitter when they expand globally?
Zack Miller | April 15, 2019
New banks, Podcasts

The Challengers 5: Why would anyone want to be a bank — the rise of BaaS — Wells should heed Buffett

  • This week's episode explores the growing trend of brands introducing financial services
  • It calls into question who and what is a bank: 'People want to bank with the brands they love'
Tearsheet Editors | April 12, 2019
Artificial Intelligence, New banks

For South Africa’s first challenger bank, conversational AI isn’t just a nice-to-have

  • TymeBank has launched Max, an AI-powered digital assistant.
  • Developed by Finn AI, Max enables the challenger bank to scale.
Zack Miller | April 02, 2019
Banking as a service, New banks

‘Why would anyone want to become a bank’: Will more challenger banks evolve as banking as a service providers?

  • Starling Bank's banking as a service offering is quickly growing.
  • Will other challenger banks follow suit?
Zack Miller | April 01, 2019
More Articles