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Posing a Challenge

A new type of bank has recently surfaced in the U.K. called Challenger banks. If you have not heard of them before, you are not alone.  The Oxford Dictionary defines them as relatively small retail banks set up with the intention of competing for business with large, long-established national banks. According to the Seismic Blog, these banks, “don’t have the operational burdens of large banks, such as extensive brick-and-mortar branch networks and cumbersome legacy systems.”

While no Challenger banks have been launched in the U.S., the ones in the U.K. could be providing some insight of what is to come. High numbers of these banks have been launched and are chipping away at the dominance of Britain’s traditional banks. According to Computer Weekly, “When Metro Bank opened its doors in 2010 it was the first new company to be granted a banking license in 150 years.” This has opened the door for others to go through the process of getting approved including: Atom Bank, Fidor Bank, Charter Savings Bank, Lintel Bank, Hampden, and Starling.

Atom Bank & Fidor Bank are two of the leading Challenger banks in the U.K. Atom Bank says, “it is building a bank with ‘none of the baggage of the past’”, according to Computer Weekly. This indicates Atom Bank will take an approach not many have tried and become a digital only bank. Fidor also has a similar approach. Fidor Bank is a social media and Web 2.0 based bank. They currently operate in Germany and Russia, but have applied for a U.K. banking license and have plans to launch in the U.S.

Without “extensive brick-and-mortar and legacy systems”, these banks frequently offer impressive customer service, lower interest rates on loans, and offer higher rates for deposits, according to Seismic. This is key to win the fight against the long standing national banks of Europe. When compared, the rates between European banks, challenger banks, and well-known banks in the U.S. are significant. The chart below contains CD APY* or AER* for six different banks.

CD Interest Rate (APY/AER) Chase Wells Fargo HSBC Barclays Fidor Bank Atom Bank
.02% .10% .95% 1.20% 1.20% 1.60%
  • APY & AER are calculated with the same formula, allowing us to easily compare many different banks and their rates.
  • 12 month rate was used for all interest rates
  • Rates are based off of a deposit between $0.00 – $9,999
  • Barclays & HSBC rate information was collected from U.S. branch websites
  • Atom Bank’s “fixed saver” and Fidor Banks “savings bond” accounts are similar to a CD

Looking strictly at APY/AER, the bank with the highest APY/AER looks pretty appealing. Between 1.60% and .02% is a huge difference. Challenger banks are ushering in a new era of banking. As millennials start to become adults, it is becoming more of a mobile world. Millennials tend to avoid visiting physical bank locations, leaning toward modern convenience. They are accustomed to this digital age and find it easier to complete tasks on a computer, phone, or tablet. The world has become savvier in terms of technology, so it is becoming more crucial for traditional banks to adopt online banking and mobile apps to keep up with the pace of society and technology.



Some may have an opinion that the Challenger bank trend will not happen in the U.S.; however, with additional changes to regulations and capitalization they could become viable threats to conventional banks. If Google, Apple, or another large non-traditional competitor made a move in this direction, it could alter the banking industry. With their existing resources and customer loyalty, these organizations already have ample tools to significantly change the playing field.

As a bank, pushing for online and mobile banking options is a must. Community banks are typically at the top with loyalty from their customers, as opposed to larger national chains. If they can also keep up with the trends and offer products similar or better than those of opposing larger companies, there is a niche in which to thrive. Hometown customers want to stay local and it’s a perfect time to be that local bank with a big future.


*CD (12-month) APY or AER is gathered from each banks’ website as of March 27, 2017. See Atom Bank, Barclays, Fidor Bank, HSBC, Chase or Wells Fargo for additional information.
*“Annual Percentage Yield – APY”. (2017, March 28). Investopedia. Retrieved from http://www.investopedia.com/terms/a/apy.asp
*“Annual Equivalent Rate – AER”. (2017, March 28). Investopedia. Retrieved from http://www.investopedia.com/terms/a/aer.asp
Riley, JR. (2016, February 19). Challenger Banks – Coming Soon to the U.S.?. Seismic. Retrieved from https://seismic.com/blog/post/challenger-banks-coming-soon-to-the-u-s/
Flinders, Karl. (2015, January 21). Six Challenger Banks Using IT to Shake Up UK Retail Banking. Computer Weekly. Retrieved from http://www.computerweekly.com/news/2240238535/Six-challenger-banks-using-IT-to-shake-up-UK-retail-banking
Flinders, Karl. (2015, January 13). Atom Bank Could Be First Real Threat to Traditional Banks. Computer Weekly. Retrieved from http://www.computerweekly.com/news/2240238034/Atom-Bank-could-be-first-real-threat-to-traditional-banks
Flinders, Karl. (2015, January 06). Cool and Funky Bank to Launch in UK Soon. Computer Weekly. Retrieved from http://www.computerweekly.com/news/2240237592/Cool-and-funky-bank-to-launch-in-UK-soon
“challenger banks”. (2017, March 24). Oxford Dictionaries. Retrieved from https://en.oxforddictionaries.com/

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