The Challenge of Challenger Banks

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. They’re the first generation born and raised in a digital universe. They use the internet to buy everything from plane tickets to groceries. And for many, their dependence on the social media means they never buy a newspaper. So it’s little wonder that millennials developed an aversion to waiting on line for a bank teller. After all, they can go online and avoid it.

Challenger Banks Were Inevitable

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

From there it was a short hop, skip and a jump before banking visionaries realized that they could provide all banking services digitally over a single website. Enter the digital banks. No waiting, no need to show up in person and 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, therefore, are now on the defense. They’re 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 one serves the better food and which one 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.

The Problem with Onboarding DIsputes

Even for challenger banks, 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 they face competition from traditional or challenger banks.

Getting Ahead of Challenger Banks

The irony is that there indeed is an easy way to expedite dispute onboarding. Cardholders can pay for transactions using their mobile phones. There should also be a mechanism that allows them to upload their disputes 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 become one that is automated, objective and uniform.

The result? Our research here at Finscend indicates that all banks can reduce dispute processing operating expenses by up to 40%. And do so while increasing customer satisfaction. Perhaps most importantly, they can also improve customer retention in this age of unprecedented competition.