Neo and Challenger Bank Market to Grow at CAGR of 50.6% by 2020: Growth Drivers and Global Industry Analysis

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.

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The global Neo and Challenger Bank 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 global market is driven by factors such as government regulations, convenience offered to consumers, and low interest rates as compared to traditional banks. However, acquisition of customers and profitability are major challenges faced by these banks. Increase in penetration of smartphone and internet in the emerging economies are expected to offer lucrative opportunities for market growth. Recent approvals of MYBank and WeBank by the Chinese authorities have provided opportunities to digital-only banks to expand their presence in China.

Segment Review-

The report analyses the neo and challenger bank market in terms of customer base based on bank type and country. On the basis of bank type, the market is segmented into neo and challenger bank. The report provides the market analysis of key countries namely, U.S., UK, Germany, China, and Australia. Neo banks lead the market in terms of customer base, and are expected to maintain their dominance throughout the forecast period.

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Challenger banks are expected to witness rapid growth in customer base in the near future due to favorable regulatory norms and enhanced convenience offered by these banks. Moreover, high prevalence of mobile and online banking in regions such as U.S., UK, and Australia is expected to drive the market in the coming years. In addition, increase in investments by angel investors and venture capitalists in fintech startups would aid these banks to sustain the competition. Furthermore, widespread launch of digital subsidiaries by traditional banks and large customer base of these banks are expected to supplement the market growth.

Convenience offered to consumers:

Traditional banks offer banking services to businesses and consumers through their branches and other online channels. The emerging trend of neo and challenger banks offering their banking services through digital channels (online or mobile app banking) in Europe and U.S. is expected to boost the market growth. Moreover, customers do not have to visit bank branches for opening bank accounts and processing their loans, which supplement the market growth. Thus, enhanced convenience offered by these banks for such services is expected to increase the customer base and boost the market growth.

Regulations supporting market growth:

Approvals and granting of banking licenses by financial authorities have increased over the past few years. This has supplemented the market growth and offered opportunities for development. For instance, Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have approved and granted licenses to neo and challenger banks, namely Atom Bank in June 2015, Tandem Bank in December 2015, Starling Bank in July 2016, and Monzo Bank in August 2016. In addition, German Banking Authority, BaFin, has granted licenses to Fidor Bank in 2009, and N26 bank in 2016. Chinese authorities have approved and granted licenses to WeBank and MyBank to cater to the financial needs of small entrepreneurs. This is expected to positively impact the market growth.

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