A survey of leading industry figures by GlobalData’s Retail Banker found that digital banks figured heavily in predictions for the year to come.
“As retail bank branches have continued to close, Amazon, Apple, Uber Money and others, have understood that by being hyper-relevant at multiple moments in their customer’s everyday lives that they can reinforce their brand value and become an embedded and trusted partner,” said Omnio CEO Adrian Cannon.
“These [digital challengers] are set to increasingly extend their product set into the financial services sector, challenging the big banks to raise their game quickly.”
Large investments in the fintech sector have put digital banks in a better position to disrupt the traditional banking market. There are already six challenger banks worth more than $1 billion, including Brazil’s Nubank ($10.4 billion) the US’ Chime ($5.8 billion) and Germany’s N26 ($3.5 billion).
“2020 may be the year when a traditional bank takes the leap and acquires a challenger bank to take advantage of the brand loyalty, as well as the scalable cloud-native systems owned by those banks,” said Ian Bradbury, CTO of Financial Services at Fujitsu.
However, digital banks are now facing challenges beyond raising capital and offering new apps.
“They need to expand their product ranges into more profitable sectors of the market. At the same time, they need to grow the number of customers signing up to use their premium subscription products,” said GlobalData banking editor Douglas Blakey.
“Despite the hype, UK challengers such as Monzo, Starling, Tandem, Revolut and N26 are not yet eating the incumbent banks’ lunch when it comes to primary banking relationships. Nor are the majority of the challengers remotely close to break-even yet alone profitability.”