What is a Challenger Bank?

The term challenger bank has been thrown around a lot lately, but many people are unsure about what the term means and who in the UK would actually be defined as a challenger bank.

A challenger bank is a small retail bank which establishes itself to compete with longer-standing, established national banks which have grown to be large scale operations.

Below we’ve explained in detail some of the features and points of difference of a challenger bank.

Healthy Competition

Challenger banks are thought to bring healthy competition to the financial sector, by driving innovation and customer service levels throughout the sector.

Unlike long-standing banks such as HSBC, Lloyds, RBS, Santander and Barclays, challenger banks are less well known and are not as confined by decades of procedures and operational rules internally.

Just like the main high street banks, challenger banks are not all the same, a common misconception that is often made.

Researching into the values and offerings of challenger banks is just as important when deciding who to bank your finances with.

Both the regulatory bodies who monitor the sector and the challenger banks themselves are happy with the increasing support for new competition in the sector, which will ‘improve customer choice and outcomes.’

Types of Challenger Banks

There are, broadly speaking, four main types of challenger bank that the industry recognises.

The first is a mid-sized full service bank, companies that fall into this category generally have 2000-9000 employees and are well known brand such as the Cooperative bank and TSB.

The second is specialist banks who have formed to service a particular customer group or target market. Often their customers will struggle to bank with the larger banks, such as SME sized businesses.

The third type of challenger banks are digital banks, who have recognised the growing trends in online business, often from millennials. They have built their operations using mobile apps, and pride themselves on offering their customers innovative ways of banking.

The fourth type of challenger bank is those whose parent companies are not banks, including supermarket banks such as Sainsbury’s and Tesco. They work as offshoots from the parent company’s main offering.

Which greater than ever choice for consumers, Best Savings Rate can help by comparing current savings and investments rates from both challenger banks and the high street banks.

Naomi Gould

Naomi was born New York and grew up in London learning to observe how businesses and finance works from her Father. Naomi now lives in the Surrey Hills and explores at weekends on her road bike.