The Rise of the Challenger Banks (Part 2)

Once upon a time, successful Internet start-ups could expect to ride a wave of accelerated growth for 10-15 years.

LinkedIn launched in 2003 and initially had 20 people or less a day join. Today, on average 2 people per second join LinkedIn, and there are in excess of 377million users. Dropbox, the online storage company, launched in September 2008 and has to date reached 300million users.

But many business analysts are now suggesting that due to competition in the market and technological advances, this growth pattern will see Internet start-ups peak after five years. Financial services is a very different market to the true start-up we have see with the likes of LinkedIn and Dropbox, but it does give a flavour of the world new, online banks and online offerings from non-mainstream banks will have to operate in.

And the new boys on the block will have an advantage over the established banks: they won’t have the same distractions of maintaining legacy technology and instead are already geared up to be reactive to changing market conditions. Not only will they be competing against the Big Five (which currently account for over 90 per cent of the market) but they will also be competing against other challengers. Flexibility and agility will be key to these organisations being able to react quickly to replicate success and even faster to drop offerings which they have tested with consumers but are not working.

Challenging the market

Perhaps individually none of the challengers will have the strength to challenge the market dominance of the Big 5, but together they represent a huge opportunity for consumers to choose where their financial services needs are met, and ultimately this is a market with a finite demand.

2015 may not see an immediate exodus of customers from the Big 5 to these new players, but as other successful technology based suppliers have shown, growth can be massive in a relatively small space of time.