Challenger banks: The Future of Digital Banking

The banking and financial services industry in the world has undergone rapid transformation recently creating huge opportunities in BFSI. The rapid growth of internet users, widespread usage of smartphones, ease access to data are few main reasons for the digital transformation in the banking industry. The rise of consumer technology platforms and innovative competitors leads to superior expectations of the customers in the online or digital banking services. This indeed necessitated the traditional banks to shift towards the digital banking service providers to fulfil the growing needs of customers.

Challenger banks provides the similar services like any other traditional banks but without any physical presence, like traditional banks they are also regulated and offer typical services such as payments, debit or credit card, mobile app, loans, overdrafts, deposits etc. Challenger banks are tech-led financial service institutions significantly grown worldwide focusing on financial technology and customer experience in last decade by offering superior services compared to conventional banks. One of the main drawbacks of traditional banks are they offer financial products which are designed to satisfy larger customers without considering customer specific needs, which will be solved by challenger banks by providing customized and personalised financial services and products to the customers which makes them very popular.

The high cost of manual process and reliance on physical touchpoints makes it challenging for the traditional banks to serve and fulfil the customer expectations resulting in rapid transformation towards digital banks. In the year 2014, RBI introduced payment banks which is also one of the reasons for gradual shift towards digital banking. Indian fintech’s have to coordinate with the regulated financial institutions to offer financial products and services to customers.

The Covid-19 pandemic also impacted number of business sectors during lockdown and when increased number of infections across India witnessed growth opportunities, leading to introduction of digital models to cater the needs of customers. Some conventional banks also launched online account opening, video KYC etc which induced the increased usage of digital services in the rural areas. With all the benefits, the challenger banks have faced serious hurdles due to the increase in fraudulent activity and associated risks.

The recent study shows that more than 54% of the India’s population are smartphone users and more than 80% has access to at least one bank account and it is also estimated that about 96% of the country’s population will use smartphones by 2040. With this estimation the success and growth of the challenger banks in a diverse country like India depends on fulfilling the specific financial requirements and needs of the desired customer segments and adoption of the financial technology.

Prof. Ramya H P,
Assistant Professor,


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