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Visa Navigate

February 2021


2 - 3 Minutes

Trending in banking - Is creating a digital challenger bank the best way to compete?

It’s a transformative time for traditional banks. The digital acceleration of the banking sector continues at pace, and banks face several key challenges now and in the years ahead: how to integrate digital technology into all areas of the bank, how to rethink the way they operate and deliver value, and how to evolve the culture to be more agile and autonomous.

Banks must also meet the needs of customers whose benchmark expectations of a digital experience are set by digital behemoths. Technology is enabling bank customers to manage their money safely and more conveniently from their smartphones and desktops. As a result, several digital-only alternatives have sprung up since the mid 2010s to offer a differentiated customer experience to traditional financial services. In some markets, tech savvy users (mainly millennials and Gen Z) and underbanked customers have flocked to services, such as Nubank and Revolut.

Banks in the CEMEA region are already going digital

  • UAE’s Mashreq Bank created Neo, a full-service bank borne out of Mashreq’s existing digital proposition and targeted at millennials and the wider market
  • Ukraine’s Universal Bank launched monobank, the first mobile-only bank in Ukraine, in 2017. Monobank is aimed at millennials and offers credit cards, loans and deposits
  • KSA’s Gulf International Bank launched Meem in 2015, the first Islamic digital banking offering to be launched in the region
  • UAE’s Commercial Bank of Dubai launched CBD Now in 2017, targeting millennials and digitally savvy customers. The digital only proposition was merged back into the parent bank a year later


Market players are taking different approaches to compete in digital banking

In many markets, technology has democratized financial services, and the race to attract the tech-savvy customer is now being contested by a combination of protagonists: traditional banks, typically mobile-first digital native banks and fintech start-ups. These players are using different business models and approaches to win the customer, and each face a different set of commercial and technical challenges to achieving their goals.

It may be too early to predict which approach will reap the rewards in the long term, but digital banks and fintechs are setting the benchmark for the minimum customer expectations of the future.

Is launching a digital bank the answer?

To be successful and to differentiate from the competition, traditional banks are required to develop their mobile banking capability as part of their omni-channel strategy and digitization roadmap.

In addition, they may also decide to create a standalone digital bank to defend their position by serving their evolved customer needs, to go after new business or to use as a test for digital innovations. However, this might not necessarily be the best response and not all challenger bank strategies proved to be successful.

In order to shine a light on the way forward, it is critical for banks to ask themselves a range of important, strategic questions:

  • How are our customers’ needs changing?
  • How do we compete with digital challengers and fintech providers?
  • How do we develop our digital channel strategy?
  • What are the growth opportunities?
  • Do we build on what we already have, or should we create our own challenger bank?
  • How should we enter the market?

This Visa Opinion Paper provides context for these questions and presents a framework to help banks decide whether creating a standalone digital challenger bank is the best approach. We also look at the way some of the forward-thinking banks are responding, and how Visa Consulting & Analytics can help banks in transforming their businesses.

For more insights please read our full opinion paper here. To find out how we can help you address any of the ideas discussed, please get in touch with our Visa Consulting and Analytics team.

All brand names, logos and/or trademarks are the property of their respective owners, are used for identification purposes only, and do not necessarily imply product endorsement or affiliation with Visa.

1 Mashreq 2017. Mashreq Bank unveils a brilliant new digital bank, Mashreq Neo, in the UAE https://www.mashreqbank.com/uae/en/news/2017/october/mashreq-bank-unveils-a-brilliant- new-digital-bank-mashreq-neo#!

2 Payspace 2020. Monobank: innovative Ukrainian neobank and its unique features https://payspacemagazine.com/banks/monobank-innovative-ukrainian-neobank-and-its-unique-features/

3 GIB 2015. GIB launches trial phase of retail banking services in the Saudi market, ‘meem’ introduces first of a kind services with an innovative approach https://www.gib.com/en/gib-launches-trial-phase-retail-banking-services-saudi-market-‘meem’-introduces-first-kind-services

4 FinTech Futures 2020. Challenger banks in the Middle East: https://www.fintechfutures.com/2019/12/challenger-banks-in-the-middle-east/


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