School of Information Systems

Challenger Banking in the United States

The United States have created amazing fintech companies such as Stripe, Square, and SoFi. However, they haven’t launched banking start-ups. This has been mostly linked to the regulation that is set up. In short, there has been an absence of a federal regulatory regime that fintech firms could use, which means that fintechs would need to apply for a license in every single state in which they want to do business. However, the Office of the Comptroller of the Currency (OCC) has cleared the way for a light banking license that can be issued to fintech start-ups. This was cleared by the US Treasury in 2018 after dealing with significant opposition from state regulators.

This means that if all goes well, new banks will start emerging in the United States very soon and many overseas companies have already expressed interest in launching.

Challenger banking, also known as digital banking or neobanking, has been gaining traction in the United States in recent years. While the U.S. banking landscape is traditionally dominated by large, established banks, a number of challenger banks have entered the market to offer innovative and customer-centric financial services. Here are some key aspects of challenger banking in the United States:

1. Digital-First Approach: Challenger banks in the U.S. operate with a digital-first mindset, providing financial services primarily through mobile apps and online platforms. They often do not have physical branch locations.

2. Variety of Offerings: U.S. challenger banks offer a range of banking and financial products, including checking and savings accounts, debit cards, and, in some cases, credit products like personal loans and credit cards.

3. Fee Transparency: Many challenger banks in the U.S. emphasize fee transparency, with a focus on reducing or eliminating common banking fees, such as monthly maintenance fees and overdraft charges.

4. User-Friendly Interfaces: These banks prioritize user-friendly interfaces and mobile app experiences, making it easy for customers to manage their accounts, make payments, and access financial insights.

5. Partnerships and Integrations: Some U.S. challenger banks partner with fintech companies to expand their service offerings. These partnerships can include features like investment options, savings automation, and international money transfers.

6. Targeted Demographics: Many challenger banks in the U.S. target specific demographics or niches. For example, some focus on serving millennials, small businesses, or international travelers.

7. Regulatory Compliance: U.S. challenger banks must adhere to federal and state banking regulations and maintain necessary licenses and approvals to operate. They often partner with established banks to provide banking services under their regulatory umbrella.

8. Competitive Landscape: The U.S. challenger banking space is competitive, with multiple players vying for market share. This competition can lead to innovative features, better customer experiences, and lower costs for consumers.

9. Customer Growth: Challenger banks in the U.S. have experienced significant customer growth, attracting users who seek modern banking solutions, enhanced digital features, and alternatives to traditional banks.

10. Challenges and Considerations: Challenges for U.S. challenger banks include building trust among customers, navigating regulatory complexities, and ensuring the security of customer data. Competition with established banks is also a factor to contend with.

Some well-known U.S. challenger banks include Chime, Varo, Current, and SoFi Money, among others. These institutions have gained popularity by offering streamlined and cost-effective banking experiences, emphasizing user-centric features, and challenging the status quo in the financial industry.

As challenger banking continues to evolve in the United States, it is likely to play a significant role in shaping the future of banking by pushing for greater innovation, transparency, and customer empowerment in the financial services sector.

I Gusti Made Karmawan