Challenger banks have shaken up the payment ecosystem in the last decade. These forward-thinking offerings have attracted millions of users, thanks to better customer experiences and financial services more attuned to modern life. Combine this with a growing trend for smartphone banking the change has led to these branchless, mobile-only banking service providers snapping at the heels of their more established rivals.
Vince Graziani is CEO of IDEX Biometrics ASA and has extensive experience in leading innovating technology development and is a recognised thought leader in biometrics. Here he shares his thoughts on whether challenger banks or traditional banks will win the secure card payments battle.
The term challenger bank is used to describe any banking service provider looking to take on and win customers from the big, corporate, or traditional banks. And now we’re beyond their early start-up days of 2015, these brands present a growing market opportunity, putting established banks under increased pressure as they battle for the next generation of customers.
US-based start-up Chime is now valued at $14.5billion and is IPO-ready. In the UK, Revolut— which has more than 14 million customers—is worth more than long-standing high street bank NatWest. Meanwhile Papara, a Turkish banking challenger has grown to eight million users, and is gearing up for European expansion in 2021, with Germany as its first growth market. Also in Europe, Swedish financial service challenger Rocker has received €48million in equity funding only 18 months after it launched. This presents some serious competition to traditional banks around the world.
Our payment habits are changing
Meanwhile, the pandemic has impacted the world’s financial habits. Today consumers are using less cash, more contactless payments and want to keep a closer eye on spending patterns. As more people move their lives online, digital challengers have been well placed to take advantage of this trend.
According to Ipsos Mori’s personal banking report, challenger banks are cementing their position ahead of some of the biggest financial brands in customer service, showing that innovation and modern ideas are revolutionising the market.
For a new generation of tech-savvy customers, challenger banks also offer something a little more fashionable, with strong branding and messaging, meeting banking needs with a customer-friendly service that fits around them, not the other way round.
Big banks need to play catch up
Big banks have been playing catch up over the past few years. They were late to the game and have retroactively started backfilling their account offerings with spending trackers and spending notifications. But chasing the features of more agile, mobile-focused competitors isn’t enough to help them thrive in a changing banking world.
In particular, as these challengers also gain competitive advantage by creating new payment options that reflect both customer demand and a need for additional security and convenience of a changing world. As studies show that payment cards will dominate the banking scene for at least the next decade, bank players need to revolutionise their own payment card offerings to respond to consumer demands.
A new approach to payment options
With consumers concerned about security, convenience, and speedy payment options in an increasingly cashless world, big banks must embrace new biometric technology.
A smart fingerprint authentication payment card already far exceeds the security of PIN authentication. This new generation of on-card fingerprint recognition technology has shown to be more than twice as secure as traditional card payment transactions requiring a four-digit PIN.
Fingerprint data is also held securely on the card, not in a shared database, meaning personal biometric data never leaves the card and cannot be hacked, recreated, or breached. By linking the user to their card via the unique properties of their fingerprint, banks and retailers can create a payment process that is safe, speedy and highly secure –while making it clear that banks are looking to the future and a financial world that is more inclusive.
Fingerprint authentication also removes barriers for those with literacy challenges or memory difficulties because biometric payment cards simply rely on who they are – allowing consumers to be their own authentication. Biometric cards can also be used to provide direct and unequivocal identification to help the financially excluded open bank accounts and improve their credit scores and they can be used in any corner of the world, even in the most remote locations with limited cloud connection.
Embrace new biometric innovation to gain top-of-wallet status
As our economy looks to bounce back from the last two years, fingerprint biometric payment cards offer a safe, secure, hygienic payment authentication, providing an additional layer of security and trust in a cashless world. Banks must embrace new biometric technology to provide their customers with an enhanced customer experience that goes beyond copying app features and delivers essential security to their payments.
These smart payment cards support a secure and straightforward approach to payments while also making it clear that the banks are looking to the future. This opens up for challengers as well as incumbents to compete for and gain top-of-wallet status. With technology evolving at lightning speed, now is the time for the banking sector to embrace innovation and win the fintech play. The challenger banks may be more agile in making fast moves, while the traditional banks often have the reach and power to scale fast.