Neo and Challenger Bank Market - 2026: Recent Developments, Key Strategies, Growth Analysis and Forecast

The global market is, growing at a CAGR of 50.6% during the period 2017 - 2020. Neo and challenger bank market trends are expected to be progressive in coming years. China is expected to witness the highest growth rate during the forecast period, owing to the large pool of underbanked consumers and surge in online and mobile banking users.

The growth of the neo and challenger bank market is driven by factors such as favorable government regulations, convenience offered to consumers, and higher interest rates than traditional banks. However, acquisition of customers and profitability pose challenges to the market growth. Furthermore, increase in penetration of smartphones and internet in the emerging economies is expected to offer immense opportunities for the market growth in the near future.

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Digital challenger banks are simplifying the financial world, creating a customer centric approach to services, and transforming the way banking is viewed by the public and the market. In return, they endeavor to deliver larger returns on equity as compared to those offered by prominent traditional banks. They strive to offer greater flexibility when it comes to lending through streamlined operations and costs." states Sheetanshu Upadhyay, BFSI Research at Allied Market Research.

The neo and challenger bank market is segmented based on the type of bank into neo and challenger banks. Among these, the neo banks segment accounts for the largest customer base in 2016, owing to the prominence of these banks in U.S. and the ease in acquisition of customers. This segment is expected to grow at a notable CAGR of 49.7% during the forecast period. The challenger banks segment is expected to grow at a CAGR of 52.6% in terms of customer base because of the proliferation of these banks in regions such as UK, Germany, and China. This is attributed to favorable regulations and substantial investments for these startups. Furthermore, increase in launch of digital subsidiaries by traditional banks and a large customer base available with them are expected to promote the growth of the market.

The U.S. accounts for approximately four-fifths share of the global neo bank market in terms of customer base in 2016, and is anticipated to maintain its dominant position throughout the forecast period. Substantial fintech investments amounting to $2.1 billion and $5.5 billion, respectively, have been made in New York and California in 2015, which reflect the market potential. The large SME market in the U.S. is relatively open to innovative solutions, which provide opportunities for challengers to innovate products and services.

The U.S. market is followed by the UK, which also has an impressive customer base, owing to favorable regulations and substantial investments funding such fintech startups. Challenger banks in the UK offer an alternative to banking arrangements for customers to differentiate themselves in terms of value services and improved service quality. Amendments in regulations and deregulation in the banking sector have facilitated the entry of challenger banks in the country. The growth of these banks in the country is on account of the reduced initial capital requirement.

The Chinese market has witnessed the entry of MYBank and WeBank post approval from China Banking Regulatory Commission (CBRC). Baidu, a challenger bank, has partnered with CITIC Bank International to launch its own online bank. The total number of SMEs in China is pegged at 42 million in 2013. The digital challenger banks intend to offer promising technologies and scale up their processes to cater to the underprivileged SME market. As per industry sources, Chinas mobile banking users increased by 50% in 2014, which reflects the untapped potential in the country.

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The neo and challenger bank market analysis is provided in the report with respect to the current trends and future estimations in the following countries, namely U.S., UK, Germany, China, and Australia.

The leading players profiled in the report include Atom Bank Plc, Movencorp Inc., Simple Finance Technology Corporation (acquired by BBVA), Fidor Bank AG (acquired by BPCE Group), N26, Pockit Limited, UBank Limited, Monzo Bank Limited, MyBank (Alibaba Group), and WeBank (Tencent Holdings Limited).

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