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What is a Challenger Bank?

All throughout April, The Fintech Times will be focussing on Challenger Banks, what they do and how they are filling the banking industry with innovative products and solutions to suit the modern customer. For the fintech aficionado, the term challenger bank is likely part of their daily vocabulary. However, for the fintech beginner, this article will highlight just what exactly a challenger bank is and why you need to know about them.

Banking is an age-old concept, and some banks have been around for hundreds of years. When the financial crash happened in 2008, many regulators and officials were worried about it happening again. To combat this, financial regulators encouraged more competition in the banking sector to reduce the hold that the big banks had on the market, where they were estimated to hold around 87% of current accounts in 2017. 

Highstreet banks

A high street bank is a large retail bank offering financial services to individuals and small to medium businesses. These banks will have many branches and office locations and are found in the main shopping areas of towns and cities, hence the term ‘high street bank.’

Virtually everyone in the UK will have had some sort of dealing with a high street bank at some point, as they are primarily used for bank accounts, depositing and withdrawing money. Other services they provide include loans, mortgages, credit services and consumer investments, amongst a host of others depending on the bank. 

Some of the major high street banks in the UK are HSBC, Barclays, NatWest and Lloyds Banking Group, known as “The Big Four”.

Challenger Banks

A challenger bank on the other hand is a smaller, newer bank aiming to directly compete – or challenge – these traditional banks using modern financial practices. Many of them have turned away from branch-based banking and operate solely online or through an app. Some major challenger banks in the UK include Starling Bank, Monzo, Revolut and Metro Bank; the latter being one of the first challenger banks founded in 2010 and received the first banking license issued by the UK government in 100 years.

Despite their digital-heavy appearances, these banks are very much real working banks, and all have to be regulated and authorised by the UK financial regulator, the Prudential Regulation Authority to accept retail deposits and even be referred to as a bank in the first place. 

Benefits of challenger banks

As mentioned, these banks often have a heavy emphasis on digital. Digital or app-based banking has many great benefits, the main one being that by not operating an in-person branch system, they can avoid the high costs associated with running and staffing premises and funnel that money into better service and innovation of products, and sometimes even lower costs to customers. 

Not only that, but they have been particularly thriving throughout the pandemic, and before, due to their customers being able to achieve their banking needs through their phones or computers from the comfort of their own sofas. Of course, as with anything, there are limitations with what can be achieved online, however, the ripe innovation these banks have created make it easy for consumers to access what they want, even following strict identity verification checks. Where opening a bank account at a high street bank might need you to make an appointment, with a digital bank the process is done within a matter of minutes.

Challenger banks often come loaded with different features too. With a traditional bank, you may get to access your bank account, move money around and use your card – sometimes that’s it. Whereas with a challenger bank you’re more likely to be able to use services that high street banks may have yet to offer – like budgeting, tools, instant spending notifications or even opportunities to invest your money.

Challenger banks also often come with bright, modern branding, with fun coloured debit and credit cards. It may not be the most technical feature, but playing for your coffee with a bright pink debit card is definitely an added bonus.

With challengers coming with their own bells and whistles, this is actually been a great move for the banking industry as a whole. to only are they diversifying the sector and providing a lot of options for consumers, but the huge innovations that challengers are doing is spurring the traditional banks to do the same. Challengers have forced traditional banks to look at their own offerings and innovate themselves in order for them to keep up with the newcomers. This is a win-win for everyone, as the banking industry is turning into a sector ripe with useful products and solutions, providing ample options for their customers.

Want to know more? Keep a lookout for our round-up of top UK challenger banks you need to know about. 


  • 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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