Challenger Banks Outpacing Traditional Institutions

Is this a permanent shift? What lessons can fintechs in other subsectors learn?

Alex Speedie

January 7, 2025

A recent study by SplitMetrics has highlighted another significant milestone in the ongoing disruption of retail banking by Fintech. For the first time, mobile apps from challenger banks have surpassed those of traditional retail banks in downloads. According to the report, UK challenger banks collectively achieved 71.8 million downloads, narrowly outpacing the 71.6 million downloads recorded by traditional retail banks. Fintech leaders such as Revolut, Monzo, and Starling are driving this trend.

This shift raises a critical question: why are customers increasingly turning away from established banks? A useful framework for understanding this trend is the Blue Ocean Strategy, developed by W. Chan Kim and Renée Mauborgne, who are considered to be two of the leading thinkers by Harvard Business Review. This strategy differentiates between operating in "red oceans," where competition is fierce and markets are commoditized, and "blue oceans," where businesses create unique value propositions that render competition irrelevant.

A central concept in the Blue Ocean Strategy is value innovation, which balances value creation and innovation. Value without innovation results in incremental improvements that fail to disrupt the market, while innovation without value risks being too futuristic, offering solutions that customers may not be ready to adopt or pay for.

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The Revolut Case Study

Revolut serves as a prime example of value innovation in action. Leading in app downloads across both neobanks and traditional banks, Revolut initially differentiated itself by offering the following features. These included currency wallets to minimize foreign exchange costs for travelers and disposable single-use bank cards to enhance online shopping security. As its market share grew, Revolut expanded its offerings, enabling users to invest in cryptocurrencies and stocks directly from the app. Additionally, Revolut targeted business clients, enhancing its product range and positioning itself as a leader in financial innovation. Its growth trajectory has been so impressive that its most recent valuation approaches $50 billion, surpassing NatWest's current valuation of $40 billion. This comparison underscores the transformative power of technology and disruption. The rise of neobanks is no longer a trend—it’s a permanent shift.

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Key Takeaways for Fintechs

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For fintechs in other sectors, the success of companies like Revolut offers valuable lessons:

Prioritize Value Innovation: Make value innovation a cornerstone of your business strategy. Ensure your offerings are both innovative and valuable to customers, creating a competitive advantage that sets you apart.
Leverage Cost Efficiency to Build Margin: Continuously reduce costs and lower prices to erode competitors’ margins while protecting your own. This strategy not only attracts customers but also keeps competitors at bay.
Focus on UI/UX Excellence: In commoditized markets, an intuitive and seamless user experience can differentiate your platform, driving customer acquisition and retention.

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Talent Strategy: A Growth Enabler

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For fintechs aspiring to achieve unicorn status, attracting and retaining top talent is critical. As discussed in last week’s article, the upcoming PISCES initiative in the UK will allow fintechs to offer employees equity in privately owned companies. Combined with flexible working arrangements, this creates an opportunity for fintechs to compete effectively for talent, even if their salary packages are not as high as those of traditional banks.

The era of Fintech disruption is here to stay. The question is not whether to adapt, but how quickly and effectively you can innovate, compete, and scale. Nonetheless, Fintechs must also refine their employer branding to emphasize the benefits of joining a fast-growing, innovative company. At Rex Machina, we specialize in helping fintechs position themselves as employers of choice and secure the talent needed for accelerated growth. If you're struggling to fill key roles, we’re here to assist you in building a team that can drive your success.

If you're struggling to fill key roles, we’re here to assist you in building a team that can drive your success. Book a call or email me at alex@rexmachina.co.uk.

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Challenger Banks Outpacing Traditional Institutions

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