The juxtaposition fuelling the challenger bank sector

When does a challenger bank just become the digital arm of a traditional bank?

A contact of mine recently told me that if challenger banks want to success they pretty much have to hire people from the traditional banking sector and abide by the same rules. In the end they look pretty much like traditional banks.

In fact they are quite literally becoming traditional banks. Digital challenger bank Atom is now about 40% owned by a traditional bank after its latest round of fund raising.

Spanish Bank upped its stake in Atom following the challenger bank’s latest round of fund raising, where it got £149m.

Atom Bank was one of the earlier challengers in the financial services sec tor, when it received its banking license in 2015. It launched its banking app in April 2016 after regulators lifted a restriction on its authorisation. It has taken more than £1.3bn in customer deposits and lent over £1.2bn, since its launch.

According to the Financial Times BBVA said the new investment “is a sign of BBVA’s confidence in both the business strategy and management team at Atom”. BBVA CEO Carlos Torres Vila said Atom is “progressing extremely well”, adding that “we are fully aligned with the vision of banking that Atom is pursuing, and the disruption it is already bringing to the UK financial services sector”

We have already seen another fintech pioneer acquired in full by a traditional high street bank when French retail banking giant BPCE acquired Fidor.

Fintech firms seem to have three choices of how to proceed. In this order of likelihood fintechs can become a leader in a niche financial service, be acquired by a traditional player or become a free standing full service bank.

Like renowned Fintech blogger Chris Skinner recently told me: “The most likely outcome is that the big banks will copy, acquire or stamp out the threat with their billions of capital. As a result, I don’t think digital will destroy banking as we know it. But I do think the banks as we know them will be transformed by digital, both structurally and culturally.”“Tomorrow’s HSBC may well be today’s First Direct. Tomorrow’s Lloyd’s Bank may well be today’s Monzo. Oh yes, and tomorrow’s BBVA is today’s Atom Bank. These are interesting times indeed.”

Then you have TSB reinventing itself as a challenger bank and Virgin Money building its own challenger bank. banks will be banks again before you know it.

Perhaps the big tech forms like Amazon and Google take over some of the prominent challenger banks. That way we might see some real disruption to the traditional banks, creating even more interesting times.