PAYMENT SOLUTIONS
The main difference comes from whether the bank has a physical , bricks-and-mortar presence . Neo banks are entirely cloud-based and reach consumers through either an app or a website , while challenger banks may still retain a small number of branches – though not nearly as many as traditional highstreet banks .
This means that challenger banks are more likely to hold a full banking licence . As their popularity has grown , this has become more commonplace . As a result , challenger banks usually offer a broader range of products and services while neo banks may focus on more niche areas or concentrate on business customers .
How do they differ from traditional banks ? One of the key distinguishing features between digital challengers and traditional banks is their agility . Challenger banks and neo banks are usually smaller , newer and so better placed to take advantage of emerging technologies and developing trends .
“ Digital banks face an uphill battle of getting their existing customer base to expand into new products ”
PAULA SMITH PARTNER AND HEAD OF BANKING AND CAPITAL MARKETS , KPMG UK
Traditional banks are often bloated by legacy systems stretching back several decades , which can prevent them from rolling out new features or adopting new platforms . As they are so invested in these systems , with much of their customer data built on them , legacy banks can find it hard to move away .
This has allowed neo banks in particular to be much more targeted with their customer proposition . Take New York-based Daylight for example , the neo bank that is building products and services to meet the financial needs of LGBTQ + customers ; or First Boulevard , which hopes to build financial solutions to help empower Black America . Where a particular group or community has specific financial requirements , digital challengers may be better placed to exclusively target those needs .
In addition , they are often more active in sustainable innovation , buoyed by their smaller footprint and tech-savvy audience . Neo banks have offered everything from carbon offset and tree planting to schemes that share some of their profits with charities . These are ideals that are quickly gaining traction with larger institutions because of their mass appeal among consumers .