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.
TrueLayer launches new verification API
TrueLayer, the leading, London-based open banking solution fintech, has announced the launch of its new Open Banking API verification solution.
According to reports, the technology combines open banking with machine learning (ML) to make the onboarding process seamless and fast.
Fast processing in Open Banking
Results show its success rate is currently 20% higher than credit bureaus because it generates reports in seconds rather than the traditional manual, bank statement checks that can take days to complete.
TrueLayer also says the technology simplifies the payment setup and transactions by pre-verifying customer’s details.
Another advantage is that existing providers have access to raw data that requires businesses to build and maintain their own logic to verify that the customer’s name matches their name on file at the bank.
The verification logic sits on top of open banking rails and matches the name given via the onboarding, along with the name held at the bank. It, therefore, offers a single feed that provides an immediate and highly accurate response regarding whether their user’s account has been verified.
Open Banking in the UK
Open Banking has seen a surge in popularity since March 2020. Data shows that the technology is being used 12-fold more than it was two years ago. Banks in the UK are now handling more open banking payments volume in a single month than the amounts measured in the whole of 2019.
TrueLayer says many of its clients are using the Verification API, including Authologic, a Y Combinator-backed provider of identity verification solutions.
Ossama Soliman, Chief Product Officer at TrueLayer, said the verification breakthrough makes a huge difference to both businesses and customers because verification is the first step to onboarding a new user and yet it can often take days to verify an account owner using traditional methods.
He explained, “Their security is questionable, they’re prone to errors and they take forever. It doesn’t need to be that way. With the verification API, we’ve built on top of open banking to create a faster, more secure, and more accurate approach to verifying a user’s account. It serves businesses across multiple industries, including financial services, PSPs, wealth management and trading, marketplaces, property, and iGaming.”
Speaking about the new technology, Jarek Sygitowicz, co-founder of Authologic explained, “Whether you are a fintech, a marketplace, or an ecommerce platform you want to deliver the best possible onboarding experience.
He added; “We are aggregating different identity verification methods and we are big supporters of using open banking thanks to its ability to make the entire process more intuitive.”
The TrueLayer verification API delivers:
• A faster onboarding process, cutting time from three days to three clicks.
• The API coverage spans all major banks, resulting in a 22.5% higher success rate compared to other credit check methods.
• Prevents fraud through its embedded strong customer authentication (SCA) within the bank verification process.
• Offers a better user experience for customers using biometric technology to confirm identity and ownership.
• Lowers payment failures through its pre-verified account details.
• Lowers burden on compliance teams through automated verification via a single API call.
• Lowers maintenance issues because engineers can focus on solving core business problems, rather than building and maintaining name-check logic.
Image credit: TrueLayer offices from TrueLayer