The Challenge of Challenger Banks

Challenger banks, neo-banks, digital banks. Call them what you will, but they’re growing by leaps and bounds. They’re the talk of the banking industry worldwide.

It’s easy to understand why. The popular explanation begins and ends with millennials, the first generation to be born and raised in a digital universe. When you use the internet to buy everything from plane tickets to groceries, and when being active in the social media means you’ve never bought a newspaper in your life, it’s little wonder that millennials have developed an aversion to waiting on line for a bank teller when you can go online and avoid it.

In retrospect, digital banks were inevitable. They were presaged the moment that traditional brick-and-mortar banks introduced ATMs for cash withdrawals. Because the hardware was now in place it was then relatively simple to add other services to ATMs as well. You could now use them to make deposits and print out bank statements. With the advent of the dial-up modem and secure firewalls, traditional banks were able to provide their customers with online access.

From there it was a short hop, skip and a jump before banking visionaries realized that all banking services could be provided digitally over a single website. Enter the digital banks. No waiting. No need to show up in person. No business hours either. The internet enables them to be open 24 hours a day, seven days a week. Perfect for millennials. And for the rest of us, too. Traditional brick-and-mortar banks are on the defensive, doing all they can to keep up with the new guys operating in cyberspace. 

Competition Places a Premium on Service

Every airline can get you from Point A to Point B. What affects your decision who to fly with all depends on the service. Which airline answers their phones sooner. Which airline serves the better food. Which airline provides more leg room. And which one allows you to take an extra suitcase at no additional charge.

The same can be said of banks. They all can get you from Point A to Point B financially. So, the one you choose will probably be the one that provides the best service in the least amount of time.

How Banks Can Get Ahead of the Competition

Even for digital banking, however, there is one significant service that still hasn’t been digitized. Credit card dispute processing continues to use the same technology it did a generation ago. In fact, much of it is done manually. Onboarding, therefore, takes time – as much as three hours from start to finish. Obviously, banks that find a way to simplify onboarding will be able to rightfully claim that they provide better service than those that do not – regardless of whether the competition is a traditional or challenger bank.

The irony is that there indeed is an easy way to expedite dispute onboarding. Since cardholders can pay for transactions using their mobile phone there should also be a mechanism that allows disputes to be handled the same way, reducing that three-hour wait to just a few minutes.

Moreover, by adding artificial intelligence to the equation, the same BaaS solution can then be used to auto-decision the disputes themselves. In so doing, the current manual, subjective and erratic process will be replaced by one that is automated, objective and uniform.

The result? Our research here at Finscend indicates that banks will be able to reduce their dispute processing operating expenses by up to 40% while increasing customer satisfaction – and, perhaps most importantly, improving customer retention in this age of unprecedented competition.