Challenger banks around the world have been growing in popularity. This has peaked the attention of investors and they are deploying eyewatering amounts of capital into startups, helping create a number of unicorns and even a decacorn.
A study from Juniper Research also claims that the rising use of digital banks are expected to user numbers exceed 3.6 billion by 2024, increasing from the 2.4 billion users in 2020.
While there have been several challenger banks to make their presence felt in Europe, other regions have not been as eager to adopt them.
In the UK there is heated competition from the likes of Monzo, Revolut, Starling Bank, Monese and Atom Bank, to name just a few.
Challenger banks in the UK have had an active year. Revolut recently closed its series D round on $500m, boosting its valuation to $5.5bn. Fellow UK digital bank Monzo also showed its signs of growth, with plans to hire an additional 500 staff and the relaunch of a premium service. Tandem Bank, Starling and Monese also all closed rounds this year,
Moving into Europe, Germany also have seen some challenger banks making headway in the market. N26 recently revealed it has reached over five million customers and has expanded its reach to the US, Greek and Slovenian markets. While Sweden’s Klarna secured a $200m investment from Commonwealth Bank to move into Australia.
Australia’s challenger banks witnessed a strong end to 2019. 86 400 and Up both launched their services to the market, while DayTek Capital pitched itself for a 2021 launch. Latin America is also seeing challenger banks develop. Brazil-based Nubank, which is valued at over $10bn, recently launched into Mexico to reach the unbanked population. The digital bank has also reached 20 million users, making it larger than the population of many counties.
While the world seems to be going challenger bank crazy, the US has been a little late to the party. A report from Forbes claimed that US consumers simply don’t want a digital bank, instead they use them as additionally accessories to their normal accounts. The articles goes on to state that only 3% of millennials have their primary checking account at a digital bank. This figure only decreases through the generations with only 1.5% of Gen Xers, and 0.8% of Baby Boomers. But as more digital banks look to expand into the US, it could mean opinions are changing.
While we are only three months into 2020, here are four of the US challenger banks already to have closed funding rounds this year. So things could be looking up for US challengers.
1 – Chime
Digital banking platform Chime recently raised up to $200m in a new funding round, according to a new US Securities and Exchange Commission filing. The capital injection came just months after the digital bank secured a $500m Series E round.
After the close of the Series E round, the company’s valuation had been put at $5.8bn.
Chime initially joined the unicorn club in March 2019 when it raised $200m at a $1.5bn valuation, meaning it managed to triple its valuation in the months leading up to December and the $500m round.
The company is looking to continue its growth efforts by building new products and doubling the size of its team by the end of 2020. Furthermore, it might look to acquire other FinTech companies.
Chime is a US digital bank which offers customers no hidden fees, access to wages two days early, automatic savings, payment card and other banking tools.
Last year, the bank did leave some of its customers unhappy after it suffered a severe service outage that left millions of customers without access to their money. Customers were quick to Twitter to outline their displeasure with the events.
One twitter user said “Yikes,” the Twitter user Shizuka Christine said. “Just as I parked at Target with my daughters, I saw the outage update. had [sic] to explain to the kids why we can’t shop and finish errands. Good thing we didn’t get out of the car.”
While Jess Yanez, another Twitter user, wrote, “This outage is beginning to get annoying! I have bills to pay and can’t transfer money where it’s need [sic] cause I have no access to balance or anything! Get this fixed all ready! [sic]”
2 – Empower
Earlier this month, Empower collected $20m in its Series A round as the appetite for digital banks continues to rise.
Backers to the round included Icon Ventures, Defy Ventures and Nubank founder and CEO David Velez, all of which made their first investments into Empower. Sequoia Capital and Initialized Capital, also contributed to the Series A, renewing their commitment to the startup.
The challenger bank combines AI and human coaching to offer personalised personal finance services which include high-yield deposit products, easy budgeting and spend tracking, bill negotiation and subscription management, and personalized recommendations.
One of the goals from the challenger bank is to improve the financial planning capabilities of millennials, which includes support for retirement and student loan repayments.
Research from analytics company Gallup found that when millennials are unhappy or dissatisfied with their bank, they are not afraid to switch. People from the generation are 2.5 times more likely to switch hat baby boomers and 1.5 times more than generation X.
Empower co-founder and CEO Warren Hogarth said, “Empower is democratizing access to financial experts and products that used to be available to only the top 1% wealthiest people.
“There’s growing demand in the market for financial knowledge to be more practical – and that means actionable, personalized information in real time to create better outcomes. We combine human coaching with the latest technology, including AI, to continuously monitor our customers’ accounts and provide intelligent alerts, prompts, and analyses to improve their financial decision-making in the moment and build financial literacy. We’ve designed every product feature to make it dead-simple to save more and grow their wealth.”
3 – One
The US’ current digital banking landscape was appealing enough for a new challenger to enter the market. One is looking to release its services to the public in the summer of 2020 and to support this plan it has closed a $17m in its Series A round.
Capital has been supplied by Foundation Capital, Core Innovation Capital and Obvious Ventures, according to a report from Crunchbase. Prior to the round, the company had been funded by its co-founder Bill Harris, who deployed $9m in equity to the company last year.
The San Francisco startup is looking to differentiate itself from other players in the market by focusing on middle-income families across the country. This includes traditional families as well as single partners, those supporting their parents, kids or other family members, those in shared housing, and more, it claims.
The bank has an app and a debit card, which enables users to better manage their finances. Through the app, a consumer access a FDIC insured account which supports automatic savings and 3% APY on balances.
4 – NorthOne
Fellow early-stage digital bank NorthOne recently closed its latest line of equity funding, with a $21m Series A from Battery Ventures principal Shiran Shalev, Redpoint Ventures and other backers.
The FinTech offers a mobile-first banking and financial management platform targeted at SMEs and freelancers. Clients gain to access services such as a government issued bank account, payments, ATM deposits and withdrawal, company debit cards and mobile check deposits.
Last year, NorthOne and Radius Bank formed a partnership to support small businesses, freelancers and startups. The strategic partnership aims to make bank business banking more accessible to entrepreneurs and change their financial experiences.
NorthOne co-founder and CEO Eytan Bensoussan said, “We’re building a banking platform that is designed around the unique needs of small businesses. Our team is focused on creating a banking experience that is designed to save entrepreneurs money, time and stress. We’re talking about hundreds of dollars in savings each month.”
The bank previously closed a $2m Seed round from Peter Graham, Tom Williams, and Ferst Capital Partners in 2018.
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