Posted on January 11, 2019 by staff

Why are challenger banks so disruptive?


You’ve likely heard the term ‘legacy issue’ before. Polite technologists use the phrase instead of saying “a nightmare from the 20th century”.

Paper is the major cause of ‘legacy issues’, and the older a business is, the more it has.

That’s why train tickets, medical records, and legal documents have slowed down tech innovation in the transport, medical, and legal sectors.

Banks top this list. On top of the millions of statements, cheques and contracts they process there’s also the cash itself; which unfortunately happens to be paper too.

Traditional banks have had their hands full with these legacy issues while trying to create new apps to satisfy digitally-native customers.

Enter ‘challenger banks’. These new players have entered the game in a post-cash world. This new breed of bank doesn’t have a location on every high street or a big safe in the back to worry about.

They approach finance the same way modern people do: as a simple set of numbers stored somewhere in the cloud.

The head-start has allowed the likes of UK-based Monzo and Revolut to develop apps with features even the biggest banks can’t compete with.

Users simply download an app and a new card arrives in the post a few days later ready to use. And that’s just the beginning.

London-based Monzo, which recently closed a £20m crowdfund, offers intelligent, automatic budgeting.

It automatically categorises a payment in a supermarket as ‘food’ whilst a payment in petrol station goes into ‘travel’, and a handy notification when you’ve spent too much in the pub.

It also rewards you for having similarly minded friends, allowing you to send money and automatically split bills with nearby friends who also have the app.

Founded in 2015, UK bank Revolut offers similar features, with the added benefit of cryptocurrency support, capitalising on the normalisation of the new form of money.

Traditional banks are no doubt attempting to mirror these new features as we speak, but their size, and those ‘legacy issues’, will continue to weigh them down.

Some legacy issues are best solved slowly and methodically. But in the case of banks, the ‘challengers’ are proving it’s just as beneficial to rip it up and start again.