Challenger banks are startup digital banks. They are considered challengers (or neobanks, depending on where you live) because they're competing against incumbent banks. Challenger banks don't have branches and are making big inroads by acquiring millions of banking customers. Why are challenger banks popular with their customers? Challenger banks typically spend a lot of time and money developing slick mobile apps that resonate with consumers comfortable with digital channels. At first, these mobile apps are paired with a debit card, making it easy for customers to move money around. Black metal debit cards were all the rage in challenger and traditional bank circles in 2018. Well, that's something, but are they really banks? Many challenger banks didn't actually start off as banks. Their apps were designed to move money on and off a debit card. Over time, challenger banks either partnered with existing banks or applied for their own banking licenses. With full-blown deposit/current accounts, they became legitimate competitors to incumbent banks. How do challenger banks make money? Challenger banks are big on transparent, low fees. Many offer basic accounts for free. Over the past couple of years, challenger banks have rolled out premium accounts that offer different services for business customers. For example, N26 offers a basic account that offers free ATM withdrawals and foreign currency payments. The Germany-based challenger bank also offers a Black account with travel and purchase insurance for €9.90 per month. UK's Revolut similarly offers a free basic account and two premium plans. Are challenger banks popular? N26, Revolut, and Monzo have millions of customers and are ramping their growth. In general, challenger banks tend to be more popular in the UK than in the US. In a country of 66 million people, UK challenger banks already have millions of customers. US-based Chime has opened two million fee-free online checking accounts and is adding more customers each month than Wells Fargo or Citibank. Are challenger banks hemorrhaging money? Some must be losing a lot of money, yes. They are all in growth mode, investing for the future. But this fremium business model, which combines free accounts with some premium services, seems to work for some at scale. Revolut's business model, for example, claimed to be breaking even in as early as 2017. What are challenger banks' ambitions? It's hard to color every challenger bank (there are dozens) with broad strokes but the leaders definitely have global ambitions. Revolut and Mozo are all expanding throughout Europe and are eying launches in the U.S. N26 has a US CEO and is also embarking on a US launch, as it aspires to be a global bank. As most traditional banks pare back their branch networks, challenger banks are going international. Challenger banks have collectively raised war chests of hundreds of millions of dollars. N26 ($300M) and Revolut ($250M) both closed significantly large rounds of financing in 2018. They appear to be capitalizing themselves to compete globally. How are incumbent banks responding? It's mixed. Many older brands don't appear to be worried. Others are launching their own brands to compete against the challenger banks. Chase's digital-only Finn looks like it's being positioned as an alternative to the challenger banks.