What Is A Challenger/Neo Bank?

The British banking sector was, for many years, dominated by the ‘big 4’; Barclays, Lloyds, Natwest and HSBC. In 2018, these 4 banks had 68% of the UK’s current accounts held with them.

But a change was on the horizon. Several ‘challenger’ or ‘neobanks’ launched in the last few years with the aim of breaking the stranglehold the ‘big 4’ had on the market.

These banks utilise technology to give the customer an easier, cheaper and more accessible product. They don’t have branches, but rather operate mainly via smartphone apps, so the customer can access their data and do their banking whenever they like.

In the 2018 stats, these new banks had a mere 1% of the UK market. However, by 2021, this share had increased to 8%. In the same time period, the ‘big 4’ banks’ market share slipped from 68% to 64%. This trend looks like it will continue, with these banks disrupting the banking scene in the UK and becoming major players.

Challenger/Neo Banks In The UK:

Starling Bank:

Starling Bank was launched in the UK in 2014 by Anne Boden, a banking industry veteran. Since that time, they have gained over 2 million current account customers. They also have by far the biggest average balance per customer compared to other neobanks. This reflects that Starling Bank have become the sole banking provider to more customers than their competitors – as the customers are clearly paying their salaries into their Starling Bank accounts each month, whilst with some other neo banks, the customers just use them as an extra bank but still maintain a main other bank account.

Monzo:

Monzo are also a fully licensed UK bank, which launched in the UK in 2015, and who have gained even more customers than Starling Bank. However, the average balance held by their users is far lower. Monzo have many more flashy extras such as insurances, and a metal debit card. This may be the reason for the lower average balance; users like the extras, but are not ready to commit 100% to Monzo as their sole bank.

Revolut:

Revolut were recently named as the biggest fintech in Europe, with a valuation (based on their investments) of over $33 billion in 2021. They have launched in dozens of countries across the world and claim to have over 12 million customers, with a goal to reach 100 million.

All very impressive statistics, but one thing that Revolut is not, in the UK at least, is a bank! Unlike Starling Bank and Monzo, Revolut have not yet received their banking license in the UK, despite applying in 2021.

Revolut do offer many standard banking functions, such as current accounts and debit cards. However, their lack of a UK banking license is holding them back from offering certain banking features, such as overdrafts and loans. In addition, customer deposits are not covered by the UK’s Financial Services Compensation Scheme (FCSC) which covers deposits in licensed UK banks up to £85,000 per customer.

The lack of a license has certainly not held millions of users back from using Revolut, and it is likely that they will finally get their license sooner or later.