Banking as our parents and grandparents knew it is now part of history. Gone are the days of long queues and piles of paper to fill out and sign. Welcome to the world of digital banking. Challenger banks have entered the market. What are they? They do what they say on the tin: they challenge the business model of the traditional clearing banks.

The big 4 clearing banks in the UK have traditionally provided savings and loans products to consumers and companies. Typically, customers are charged high levels of fees and interest rates while service levels and innovation of new products by these banks is often poor. As these four large banks effectively operated as an oligopoly, following the financial crisis of 2007 to 2008, the UK government encouraged the creation of new banks (known as challenger banks, or neo-banks) and FinTech companies to provide innovation in the sector, resulting in better quality of services and lower costs to customers. Most of these challenger banks operated without setting up branches (the one exception being Metro Bank), and therefore provide access to customers via an online platform (an application or online). The result has been spectacular growth in some of these challenger banks, fueled mainly by a digitally native customer base, looking for a more accessible banking experience. For example, Revolut is a global financial platform that gives people the power to spend, invest and transfer money without the “sky-high” fees charged by the big banks. Revolut is poised to be a huge long-term winner, having raised over 500 million dollars and becoming one of the largest fintech companies in the world with over 10 million customers globally. Likewise, the neo-bank Monzo, has been deemed ‘the future’ of world banking and it has exceeded 3 million customers and is valued at around £ 2 billion.

Monzo and Revolut were the challenger banks among the 2020 winners of the British Bank Awards. Monzo won “Best Banking App” for the second year running.  Monzo continues to earn recognition for its user-friendly interface and efficient mobile payment capabilities as it won “Best Banking App’ for the second year in a row, whilst Revolut, the UK’s largest digital bank, was awarded ‘Innovation of the Year’.

It is not only the product’s service that is appealing to the millennials. The branding has captured the current 2020 trends.

Monzo was originally launched under the name Mondo, which ties together ideas of a global bank, and of money. Following their launch in 2015 with the name Mondo, they encountered legal issues, forcing them to change it. They opened the floor to the public to design a new name, giving three instructions:

1. That the name should start with the letter “M” (as they really liked their pre-existing logo and did not want to change it).

2. That the name should represent them, and their work across different languages and cultures.

3. And jokingly, that the name could not be Banky McBankface, hinting toward the landslide victory of Boaty McBoatface as the most popular name for a new British arctic exploration ship. Their new name, Monzo, was suggested by 6 different members of the Monzo community, and through its subtle name change, it keeps the essence of the global brand through the link to ‘mondial’, and of course to ‘money’.

The Monzo logo designer stated that his design of the brand ‘aims to be strong, confident and trustworthy whilst remaining colourful, friendly and human.’ And indeed, it does. The mix of eye-catching colours draw the attention of the public, while the rounded corners remove the sharpness of the brand. The card itself in its bright coral colour are cards are noticeable from a mile away, so much so that Monzo, would you believe it, tried (and failed) to trademark the colour ‘Hot Coral’!

Toning down the colour from the hot coral, Revolut have opted for an ombre purple. The colour similarly hints at their step away from the mainstream mode of banking, and their step away from the traditional card, that blends into the others in your wallet. The Revolut card succeeds in standing out, without being blindingly bright. Their name also connotes these qualities, hinting at ‘revolte’, a suggestion that they are revolting against the ‘traditional’ model of banking, and also ‘revolutionary’, showing that their brand is the start of something new.

There you have it: these challenger banks let us control everything with the click of a button. Sending and receiving money and managing your finances has never been easier. The banking apps sends us instant notifications of our spending, allows us to manage our budget with analytics and lets us freeze cards. There are zero set-up, usage fees or fees for spending abroad. In a survey carried out by AT Kearney, it has been shown that ‘more than one in five UK customers, and one in three millennial Brits say their primary banking relationship is with one of the host of challengers to have emerged over the last decade’, which clearly shows the challenger bank’s ability to capture the new generations.

However, there are also no branches, and although the millennial generation are used to in-app conversing through a live chat, the lack of face-to face interaction poses a problem for many potential clients. In the report ‘Millennials and Money: Banking in the age of the robot’, it states that ‘the decline of the high street and rise of online commerce clearly affects the ways in which people of all ages interact with their bank, but younger customers are less likely to view face-to-face services as important.’

Now, with the growing use of banking apps across the generations and the increasing use of contactless cards, we are speeding towards a cash-less future. Indeed, COVID-19 could be the push society needed to wave goodbye to cash for good. Thanks to the increased number of shops refusing to accept notes and coins, we are being forced to take the next step towards a life without cash. Mindsets are changing. Thanks to the emergence of challenger banks successfully making it easier to control our finances, we are starting to see a change. Perhaps a cash-free future is not the worst thing after all.