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% |
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APY & AER are calculated with the same formula, allowing us to easily compare many different banks and their rates.
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12 month rate was used for all interest rates
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Rates are based off of a deposit between $0.00 – $9,999
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Barclays & HSBC rate information was collected from U.S. branch websites
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Atom Banks fixed saver and Fidor Banks “savings bond” accounts are similar to a CD
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