Challenger banks are gaining momentum in the financial services industry, offering banking alternatives that offer new experiences to consumers. These banks don’t have traditional branches, but instead provide convenience and accessibility through digital-only channels.
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Data for today’s episode is provided by Mercator Advisory Group’s report –Digital-Only Corporate Banks: Not Just Yet
Can Challenger Banks Enter into Corporate Payments?
- 2019 challenger bank valuation was roughly $3.8 billion, and is expected to grow to $30 billion by 2025.
- 2019 combined net income of the top 5 U.S. banks was $55 billion.
- Another estimate has traditional banks closed 7x more consumer loans than challenger banks.
- The first wave of challenger banks was designed to advance the retail banking experience for consumers.
- Launching a true digital-only corporate bank is almost impossible without the large capital required to play in corporate finance.
- As an example, CitiBank requires almost $32 billion in capital for its loan portfolio.
- One potential route is the “big techs” (Alphabet, Amazon, etc.), but the issue for them is applying for bank charter and the regulation entailed.
The largest corporate banking institutions are creating robust digital solutions, but pure startup banks are looking at smaller business targets.
It will be a while before truly corporate banking institutions can create an end-to-end digital banking experience. The challenger and neobanks are looking at the spaces where needs are more succinct and easily matched with capabilities.