Are these challenger banks offering anything different?
"No, The fundamentals of banking are as they always have been. Yet challenger banks are undeniably giving the industry a much-needed refresh.
For decades, limited competition and, in turn, little differentiation between the high street banks has kept the incentives for switching low. The package of better customer service, clean interfaces, being able to use your card abroad for free, spending insights and instant notifications is an irresistible one – particularly for younger consumers who are yet to develop bank loyalty.
But I think there is also something less tangible which makes challenger banks appealing. They seem more human and empathetic, standing in stark contrast to the imposing high street ‘institution'."
Are challenger banks actually challenging traditional banks?
"The impact of the challenger bank is on the rise, presenting a threat to the growth of traditional banks. That’s reflected in a five per cent drop in new account openings among the Big Banks in 2019 compared to 2018."
But, whilst one in ten new accounts opened are with a digital-only bank, only 24 per cent of those accounts are being used as a main current account.
Have challenger banks been profitable?
"Remember that the ‘challengers’ face their own challenge. Building legions of diehard fans is one thing – but finding a clear route to profitability is another."
Most challenger banks have struggled to make profit so far.
While Revolut recently reported a 354 per cent revenue increase between 2017 and 2018, since the cost of sales increased 247 per cent within that year too, the bank actually recorded a loss of £32.8million after tax
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