FinTech definitions: what is a challenger bank?
Challenger banks are receiving a lot of attention in the financial sector for their excellent service and innovative approaches, but what are they?
Popularly considered to be small-medium retail operations set up with the purpose of competing against other, larger and more established banking institutions, challenger banks are heralding an exciting era in finance for customers.
Although not restricted just to the UK, challenger banks have found its financial climate fertile ground for innovation, with some of the most noteworthy global examples originating there.
Originating in the wake of the 2008 financial crisis, regulators began encouraging more market competition in order to mitigate the fixed concentration of power held by the UK’s largest institutions.
What makes challenger banks different?
Perhaps the most striking difference between these and traditional banks is their focus on digital technology and online customer experience. Although these aspects have started to gain momentum generally in recent times, challenger banks have often been the conceptual pioneers.
Customers can often enjoy a more diverse range of products and services to suit their needs, as well as better interest rates than comparable offerings from the high-street.
Moneyfacts found in its that challenger banks had a 0.66% higher average AER on a one-year fixed-rate bond. The same survey also recorded challenger banks as offering 11 more products than traditional banks (36 vs 25).
Despite being a generally all-inclusive term, challenger banks can be broken down into subcategories:
- Digital: These are entirely online organisations with no physical branches ( and )
- Commercial lenders ( and )
- Challengers banks which maintain a high-street presence ( and )
As customers become accustomed to the easy convenience of digital banking and less reliant on ATMs and physical branches, traditional banks may find that they need to collaborate with tech innovators to remain competitive.
In the meantime, challenger banks will continue to introduce much-needed diversity into the finance sector, elevate the online customer experience and offer services which only the most agile enterprises can develop.
Frictionless banking, the Salesforce way
Alan Donnelly has enjoyed a long and successful career in the IT and financial services industry. He has worked with banks, insurers, payments companies, fintechs and more in support of business transformation programmes for some of the biggest names in the business for the past 27 years.
Today, he’s head of financial services for Salesforce UK, the leading global, cloud-based CRM platform that integrates customers and companies. Donnelly is also currently leading the Salesforce operation that is digitally transforming the UK arm of the Madrid-based Santander Group.
“I have had the pleasure of working with many financia
l institutions over many years,” he says. “Typically, it was involved in helping customers build big banking systems and banking platforms that ran what we would call systems of record. But now, as I've moved into Salesforce and we're building our financial services business, we are really now helping our customers engage with their customers.”
The partnership withSantander is a multi channel operation that sees Salesforce helping the bank to engage better with corporate clients and retail customers via their branches and the internet, says Donnelly.
“We're also helping them with customers, who maybe wish to acquire mortgages and mortgages for the life events. I guess it's a multi connectivity environment. But in every case, Santander needs to understand the customer's requirements and better serve those customers in the right time and the right fashion,” Donnelly explains
He adds, “I also think the ability to contact customers whenever they need help and support, as we've seen in the recent pandemic, has proven critical - so I think technology is definitely much more connectable and effective than it was before.”