Digital banks and FinTechs that are challenging incumbent banks

22 November 2017 8 min. read

Across the banking landscape, new challenger banks and FinTechs are attacking the business models of banks where they can make a difference,. In retail banking, the trend is visible across the value chain, from customer contact and lending to mortgages, payments and alternative financing. Ronald te Velde, an advisor at management consultancy Connective Payments, reflects on the state of the current threat and provides examples of challengers banks and FinTechs that have been able to make a mark. 

PayPal was an innovator launching account services and peer-to-peer payments almost two decades ago. They started from the perspective of facilitating online payments as a seamless online service. But now, multiple FinTechs start from the perspective of being or becoming a bank. What they all have in common is a focus on speed and convenience! Instant service access, instant boarding as a new client, instant client support. These are the new rules in banking. Banks that are unable to live up to the new paradigm soon are doomed to have a hard time competing. 

An overview of challenger banks with their claims and offerings is provided below, demonstrating the growing competition in the landscape: 

“Life doesn't have boundaries, so why should your banking? We're making banking easier, intuitive and there whenever you need it, all on your mobile.”

Atom offers multiple banking services. Atom is the UK’s first bank built exclusively for mobile devices. They launched in 2016 with fixed saver accounts and mortgages, regarded a sweet spot for consumer banks. Even with current low interest rates, Atom offers 1,8% for a one year fixed amount of savings. 

Digital banks and FinTechs that are challenging incumbent banks

“We're the bank that's all about you. We're open when you need us – and you can pop into a store and get your account up and running straight away.” 

Metro Bank is a UK bank that was founded on the idea that you should be able to bank when it suits you. That is why their branches are open 7 days a week and customers can call 24/7. The service offering is broad compared to other FinTech banks: current accounts, payments, mortgages and saving accounts.

“N26 is the mobile bank. Free bank account and Mastercard that you can manage directly from your phone. Open your bank account online in 8 minutes.” 

A bank account for your phone’ is the slogan of N26. Sending money, saving money and keeping money safe is what N26 offers in its proposition in five European countries. Transferwise is integrated in the N26 app as soon as a payment takes place in one of the 19 currencies outside one’s home currency. 

“Opening a savings account, getting a loan or finding a mortgage? MoneYou is the online portal to help you out.”

Moneyou was launched by Dutch bank ABN Amro years ago for the savings and mortgage market. Recently, Moneyou introduced a growth strategy based on FinTech principles: online and in-app services, speedy boarding and international scalability. 

“We are Bunq, the true alternative to traditional banking. Our pledge: We love privacy. No nasty investments. Mobile only. Join us!” 

‘Bank of the free’ is the slogan of Bunq. Similar to N26 and Fidor, Bunq is a real challenger in the market funded with private money. The app-based bank has interesting features to share accounts with family or friends and connect debit and credit cards to different IBAN’s from the app. Netherlands-based Bunq have, however, recently been criticised for changing their business model from transaction-based to subscription-based, which hasn’t done much good to early adopters of the proposition.

 Atom,  Knab,  N26, Bung, MoneYou, Loot, Metro, Venmo, PayConiq, Fidor, Revolut

“As an innovative online bank, Fidor offers you easy and intuitive ways to invest. Not a client yet? Try us!”

‘Fidor is banking with friends’. Therefore, they have combined smart payment services and saving accounts with investments and crowd funding. People you know and trust are easier to convince to share your money with in one way or another.

Fidor also sells its platform as a whitelabel solution; i.e. to Van Lanschot, Dutch wealth management bank: a mobile payment app, on-us real-time payments, multiple accounts in multiple currencies, global money transfers, P2P transfers in addition to special services for the Dutch market such as iDEAL payments and Acceptgiro. 

“Providing clarity in your personal finances, from your bank account to insurance and mortgage. That is our belief.” 

Knab is one of the first FinTech banks in the Netherlands, having already started back in 2012 as part of financial services company Aegon. The proposition was mainly online and not yet app-based as most recent banks currently offer. Knab has a current client base between 150.000 and 200.000 customers. As one of the few, they offer banking services to businesses, which is nearly half of their client base. Apart from that, Knab has an extensive service portfolio: account services including debit and credit card, saving accounts, mortgages, insurance, investments and crowd funding.

Other upcoming players

Alongside the aforementioned banks, there are many banking alternatives with smart apps around cards payments, peer-to-peer payments or retail payments. More or less similar to how Paypal started. A few examples are:

“A world beyond banking – a secure, mobile-based current account that allows you to hold, exchange and transfer without fees in 26 different currencies.”

‘Your digital banking alternative’ is Revolut’s slogan. Revolut is a digital banking alternative that includes a pre-paid debit card, currency exchange, and peer-to-peer payments. Revolut currently charges no fees for the majority of its services, and uses the interbank rates for its currency exchange. The company just started offering business accounts with multi-currency accounts and instant transfers. 

Quote Ronald te Velde


“Pay with your smartphone. It's surprisingly simple with Payconiq. For payments between friends, in a store or at a restaurant.” 

Belfius, ING and KBC are shareholders of PayConiq. The app-based services are available in Belgium and will become available in The Netherlands soon. The services of PayConiq are solely aimed at retail and peer-to-peer payments. Loyalty is part of the proposition. 

“This is Loot: a current account and contactless Loot Mastercard card... Loot is a current account and works just as you would imagine, only, Loot is not a bank.”

Loot is an app-based payments solution around a MasterCard credit card; a type of wallet. The app is built around budgeting and realising financial goals. It supports travel and is aiming at students and young people in general.

“Venmo is a free digital wallet that lets you make and share payments with friends. You can easily split the bill, cab fare, or much more.”

US-based Venmo is a mobile payment service owned by PayPal. Currently it shows close resemblance to the functionality of PayPal. However, it is more popular among millennials. It aims at peer-to-peer payments and in-app retail payments. Payments from the Venmo app can be done by debit or credit cards linked to the app.

A revolution in the make?

These payment startups, apps and challenger banks all started in the last 5 to 10 years. Together, they already service millions of clients. Incumbent banks have responded to the majority of threats, yet, across the board, they lack the speed and agile operations to keep pace with the frontrunners. Does this mean there is a revolution in the make? At Connective Payments we don’t think so. What is clear is that banks should keep a close eye on their external environment and embrace technological innovation, to help them adopt technological solutions focused at delivering on the needs of their customers.

Related: Integral and agile strategy is key for success of FinTech investments.