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Papara: The Evolution of Challenger Banks and Competition

Though traditional banks are still seen to dominate the financial world, Challenger banks are catching up, and in some cases, overtaking these institutions with their constant innovation of products and services. 

Ahmed F. Karslı is the Founder and CEO of Papara, a Turkish financial SuperApp offering instant, free, multi-currency transfers to consumers as well as providing a one-stop-shop for paying bills, trading digital currencies and tracking spending habits. Targeting the underbanked and underserved, Papara has grown since launching in Tukey in 2016 to become Turkey’s largest fintech company with a current customer base of eight million registered users.

Here, Ahmed discusses the evolution of challenger banks.

Ahmed F. Karslı, Founder and CEO of Papara

The global financial crisis of 2007 was a watershed moment for many of us, as we realised the financial institutions that had long-ruled perhaps were due a shake-up and weren’t working as well as they should have for us. We witnessed rapid developments in fintech innovation, as well as made significant strides towards adopting mobile banking technology, but despite that, traditional banks have continued to dominate the global banking market. As of July 2020, only 5% of consumers surveyed by EPAM worldwide used a challenger bank as their primary bank.

Then came Covid-19 which marked a critical moment for the banking sector. Across the globe, social distancing restrictions put in place spurred a turn towards online payment services, significantly accelerating the global shift towards digital. In fact, more than half (52%) of consumers said they increased their use of digital banking tools as a result of the pandemic. We’ve seen this first-hand in Turkey too – since launch in 2016, we’ve grown to over 8m users, with a large proportion of these users acquired during the Covid-19 pandemic.

With digital efficiencies at their core, and unconstrained by the legacy systems their incumbents are built on, the pandemic has been a defining moment for challenger banks, elevating their key points of differentiation to new heights and relevance. The months of social distancing provided ample time for consumers to grow accustomed to the user-friendliness, flexibility, and innovative features on offer by challengers, and switches back to incumbents are now increasingly unlikely. In short, the pandemic has provided the perfect environment to facilitate permanent behavioural change. On average, it takes approximately 66 days to form a new habit, supported by prolonged exposure to new environments. The many waves of the pandemic pushed people to adopt new behavioural patterns over longer periods of time, and therefore it comes as no surprise that 87% of consumers intend to maintain their newly formed habits around heightened use of digital services, post-pandemic.

As we emerge from the Covid-19 crisis with more digitally evolved consumer habits, we come to a turning point in the financial services industry: the challenger banking landscape will become less competitive, and the proportion of challenger banks in the broader banking industry will grow. In fact, the Compound Annual Growth Rate (CAGR) of these digital banks is currently at 46.5% – a sizeable proportion of the market which is estimated to increase to over $394m by 2026.

As the share of challenger banks increases, as a whole, their focus should be to disrupting the traditional banking system and incumbents as opposed to competing against each other. With over 250 challengers in the market, over four-fold up from 60 in 2018, there is little uncontended space in the neo-bank sector. Here at Papara, we’re one of the newer challengers on the block. As we gear up for expansion into Western Europe, rather than directly taking on the existing, more established neo-banks, we have decided to focus on an area we believe to be of critical importance to our audience – remittances. Sending money back to Turkey is a major pain point for Turkish communities abroad as options are currently limited, and very costly. At Papara, we’re set on providing a better way. Our users will be able to complete free foreign money transfers, thereby completely cutting these costs for 20million Turkish people in mid-Europe.

With a whole host of challengers committed to each solving a different set of society’s financial problems in a free, fast and user-friendly manner, there will remain little room for incumbents to compete. Consumers have tended to use challenger banks for discretionary spending, namely travel and money transfer, whilst relying on traditional banks for the real revenue makers – loans and mortgages. But as the market share of challengers grows to offer innovative, tailored and cost-efficient alternatives for these products, competition between challengers and incumbents will truly heat up. In fact, PwC has estimated that up to 28% of banking and payment services will face the risk of disruption from new business models introduced by fintech.

Many of the initial challengers are coming up to their five year anniversaries, and are nearing the growth ambitions they had initially set out to achieve. This maturing of challenger banks is another key factor driving the digital threat to legacy banks – with growth and time comes increased familiarity with ‘new’, digital concepts, and therefore trust in them. This notion will only be further compounded with time as younger, digitally native generations enter the financial market.

Challengers are no longer a small set of digital alternatives competing against each other. They’ve joined together to grow their offering and market share as a whole, and have thereby levelled out the playing field between themselves and their incumbents. Watch this space as the real competition begins to unfold, and challengers continue to flood into traditional banking territory.


  • Polly is a journalist, content creator and general opinion holder from North Wales. She has written for a number of publications, usually hovering around the topics of fintech, tech, lifestyle and body positivity.

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