Retail banking is undergoing something of a revolution. Taking advantage of the fact that traditional banks haven’t changed much over the years, so-called challenger banks and payment firms are starting to capture market share from the younger generation. Although most big banks offer online portals, these are often based on legacy technologies that make them slow and cumbersome to use.
In contrast, the challenger banks and related payment firms adopt a digital-first approach that appeals to millennials and generation Z. These up-and-coming fintech firms are able to develop new platforms, predominantly targeted at mobile users, that are simple to use and streamlined.
In this way, companies can keep technology overheads low while also avoiding the cost of maintaining bricks-and-mortar premises. They can serve millions of users from a single location with a relatively small team, quickly able to adapt to user demands.
A Global Phenomenon
The UK proved to be fertile ground for this phenomenon to take root, but it’s now rapidly expanding across the globe. In 2017, British-based Monzo and rival firm Atom Bank raised $120m and $140m in funding, respectively. Now, similar offerings are popping up in Germany with Solaris Bank and N26, in Brazil with Banco Original, and in China with MyBank and WeBank.
However, the UK fintech shift shows no signs of slowing. Revolut recently made the news when it announced it was seeking $1.5 billion in growth funding.
A New Suite of Digital Finance Services
Clunky legacy technology alone isn’t likely to be the only factor driving the younger generation towards the challengers and payment firms, so what makes these companies different? Another key driver for change is that they tend to hone on niche services that traditional banks have overlooked. For example, pre-paid credit cards for traveling mean that users can avoid paying foreign exchange fees.
They may also offer higher rates on savings than the traditional banks, or the ability to send instant payments to other users. Lower cost, on-demand services such as travel insurance are also alluring for a generation looking for more flexibility from their providers.
Given the focus on digital, it’s perhaps unsurprising that the challengers have now started to differentiate themselves from the traditional banks in another way – embracing cryptocurrencies. This is an intriguing development for the nascent crypto sector, as these companies have a massive user base, bringing Bitcoin and its cousins in front of a new audience of potential adopters.
Digital Banking Frontrunners in Cryptocurrency
Perhaps unsurprisingly given that many challengers originated in the UK, the first movers into the crypto space are also UK-based firms. In contrast, it could be that Brits have more ways to buy bitcoin in the UK, which is why local fintech firms have decided to focus on it.
Either way, one example of a fintech firm adopting cryptocurrency is UK-based payment firm Skrill, which started offering users the option to buy digital assets using their fiat deposits back in 2018. More recently, Skrill has added crypto-to-crypto buy-and-sell services to its platform. Users can swap their Bitcoins for up to eight other cryptocurrencies, including Litecoin, Bitcoin Cash, and EOS, among others.
Skrill has a user base of 20 million people, who can now more easily access crypto and play around with a portfolio using their existing account balances. One of the critical barriers to mainstream adoption is the fact that users need to navigate cryptocurrency exchanges, which have a poor reputation for security following several high-profile hacks. A crypto service through a trusted provider like Skrill is a major key to overcoming that barrier.
Skrill doesn’t necessarily fit into the category of new fintech firms. The company started life as Moneybookers back in 2001 and is now operated by the Paysafe Group. Paysafe also owns Neteller, another payment firm that’s expanded into cryptocurrency services.
Revolut is another example. The company has been steadily expanding its platform based around pre-paid debit cards, savings vaults, and overseas medical insurance. Like Skrill, it also offers users the opportunity to purchase crypto through its platform. If it manages to raise the $1.5 bn funding it’s currently seeking, then Revolut could also be a critical catalyst in bringing crypto to the masses.
Trailblazing a Crypto-Finance Revolution?
Others seem set to follow. German bank N26 has previously indicated it intends to integrate crypto trading into its app. Starling Bank doesn’t currently accept crypto but stated in a Twitter thread last year that it acknowledges cryptocurrency is becoming more mainstream.
Hi Josh! At the moment our cards and accounts do not support Coinbase, nor Crypto Currencies. 😀
— Starling Bank (@StarlingBank) July 28, 2018
The co-founder of Starling Bank also recently joined Gemini as Managing Director for Europe, which may perhaps help to build a bridge between Starling Bank and the crypto space.
Although many of the other challengers have yet to leap into crypto, there was one surprising entrant from the traditional banks reported in November. The Royal Bank of Canada (RBC) recently filed four patents in the US and Canada that indicate an intent to incorporate cryptocurrencies into its offerings.
If the RBC can blaze a trail for traditional banks in crypto adoption, the challengers holding back in this regard may have to up their game. However, given that the pace of change in the traditional retail banking sector tends to be somewhat glacial, the more agile challengers are more likely to have a better chance of providing a bridge to crypto for new users.
Although crypto still caters to a niche audience, it seems likely that challenger banks and payment companies could ultimately play a very critical role in bringing crypto to the masses. The question is when, rather than if, they’ll follow in the footsteps of the early adopters.