Do Challenger Banks Pose a Challenge to Credit Unions?

Credit unions have traditionally competed with banks for market share, striving to offer comparable (if not better) products, services and the newest and best in technology. While most credit unions hold their own with technology and products, what ultimately gives them their edge is their foundation built on the importance of member relationships and a member’s personal ownership in the credit union. But as we have seen over the last few years, digital banking conveniences have become a fundamental part of a financial institution's offerings, a requirement in order to stay competitive. And to that end, credit unions might have a new competitor - Challenger Banks. While these digital-only institutions are still more widely used overseas, they are gaining in popularity here in the US market, and could represent a potential threat of lost deposits, revenue and members to credit unions and other financial institutions in general.

These Challenger Banks - or Neobanks as they’re sometimes referred - provide basic financial services using digital and mobile technologies only – with no traditional brick and mortar locations. They offer many of the same services as other financial institutions, such as checking and savings accounts, payment and money transfer services, loan options and other financial services. Most offer fee-free ATM use, and usually no fee to open a basic account. However, many don’t have the backing of a traditional bank or charter behind them (though some are FDIC-insured).

This newest form of e-banking has its appeal, as it is convenient, fast, and transactions - such as remote check deposits and transfers - can be accomplished real-time. This has its appeal to many consumers but most notably Millennials who are often just starting out their career and may not have the need yet for more complicated financial products.

Just how popular are they? As mentioned before, Challenger Banks are currently more popular in the UK and Europe than in the U.S.  N26, a German-based challenger bank, as of 2018 had 1 million clients across Europe, and is on pace to hit 5 million by 2020. Revolut and Monzo, two of the largest challenger banks in the UK, have millions of customers each and are still growing, with both looking to expand to the U.S. market; Resolut actually has a waitlist!  Don't discount the US neobanks - US-based Chime has two million online checking accounts and is also growing, adding more customers each month than either Wells Fargo or Citibank.

But these Challenger Banks are not the right choice or fit for all consumers. Sure, they are attractive, trendy, and have their place with some demographics but don't forget that while they are shiny on the surface, your members are with a credit union for a reason. They chose your credit union because of the expectation of quality member service and a personalized experience. They want to know that if a problem should arise, a life event takes place, or a member has retirement or investment questions, they have someplace to go, someone to talk to. Rise up to the challenge the Challenger Banks pose by sticking to the core of your business.