Challenger Banks


Challenger banks are, in their modern form, an interesting concept. They are the new wave of banking that’s been developed to challenge the old, long-standing and traditional banks – this has come due to a rise in technology in banking. Technology has ushered in a new era for banking; with the development of easy-access bank accounts and being able to view and manage your money whilst on the move.

“A relatively small retail bank set up with the intention of competing for business with large, long-established national banks.” (from –

This has meant that there is a new opportunity in the market to change the traditional way of banking. Some of these banks are online-only which shows how the development of technology in banking has created the gap in the market for challenger banks to develop without the previous challenges facing brick-and-mortar establishments.

Another change that when coupled with the technology developments prompted the progression of challenger banks is changes to the regulatory landscape in the UK financial services industry. Nowadays setting up a bank with a full license used to be extremely expensive and time consuming, meaning only a few banks could enter the market. Thus, a monopoly formed with the so called Big Four, as proven by ‘when Metro Bank received their license in 2010, it was the first one to have been issued by the UK government in 100 years’ from –

Challenger Banks

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The development to open up the banking sector has influenced a new wave of start-ups in the market (challenger banks), which is a bonus for consumers, who now have more options to choose from. They also provide other benefits as they’re trying to do things differently and blow up traditional banking methods:

“Extra choice, better service, longer opening hours, more convenience and best-buy rates are just a few of the weapons that the challenger banks are using to make people sit up and take notice.” (from –

As these banks are trying to do things differently they have spent quite a lot of money to be unique and distinct, meaning they have funded having modern designs on things such as their apps – these apps are personalised, having real-time payment information (notifications), snappy customer service and low fees. The benefit of this to consumers is that it makes managing your money easier, you can keep track of your spending and can immediately identify if a transaction isn’t you; thus, identifying fraudulent activity. The only thing with this is that consumers have to be willing to share spending data with these challenger banks to enable most of these features. But these challenger banks are relatively new to the market, so as they get more customers you can expect the features they offer to improve also.

With that said, the development of challenger banks is not always a positive thing. They do have some negatives or at least perceived negatives. A main one for consumers that is the fact that they often do not offer a full suite of banking products and services ( ). This could be a challenger bank that just offers mortgages or credit cards or one that does not provide you with a physical card. This means that they aren’t a one stop shop that provides everything. The main negative to this is having to do more research to identify what they do offer and how relevant a certain challenger bank will be to your needs – something that is probably a wise thing to do anyway. Another thing that negates this as an issue is the fact in modern western societies consumers regularly have more than one bank account for various different reasons!

Other concerns with challenger banks are that they are a new venture in a market where they hold your money, which is always a concern. They don’t necessarily have the reputation and security of other traditional banks. This is a valid concern as nobody wants to risk their savings, especially as there are examples of this – like Loot ‘RBS-backed digital banking app Loot goes bust’ ( – however even with this business going into administration their customers’ money was safe as the card issuers (Wirecard) actually stored their money.

Loot was an example of a challenger bank going bust who weren’t covered by the FCA compensation scheme. Now the next question will be is my money safe under the FCA compensation scheme? And the answer is yes, up to a certain amount. Under the FCA (Financial Conduct Authority) rules your money will be safe with these new banks (challenger banks) up to £85k. So, unless you’re very wealthy and have a nest egg of over £85k your money will be safe.


In conclusion, challenger banks are an amazing development for consumers, instead of having to deal with the old, traditional banks – consumers can now choose a challenger bank that suits the current climate. These challenger banks help consumers be able to actively manage their money; these banks have apps which will monitor your monthly spend and report back to you what category you are spending most of your money on. This is tremendously helpful, for the consumer being able to better plan and manage their money.

As well as this most of the negatives surrounding challenger banks are more customer pain points rather than real disadvantages for consumers, such as not having everything in one place and this just requires some research and signing up to numerous banks which the majority of people already do. The concerns about your money being safe and secure are valid points, which you should always personally research into, to be doubly sure. However, the FCA compensation scheme helps negate this to the majority of the population as it’s secure up to £85k. I have also provided an example where a business went bust and weren’t covered by this compensation scheme, but that company’s customer’s money was still safe.

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