Framing new futures | KPMG | UK
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Framing new futures: Challenger banking annual report

Framing new futures

Challenger banks have continued to sustain momentum in 2017, evident in their financial results. They have successfully made their mark in the financial services industry, but the term ‘Challenger banks’ does little to explain the breadth of their ambitions or the complex business models they employ. Is there a better way to define them?


Partner, Head of Financial Services Indirect Tax Practice, UK

KPMG in the UK


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Shifting Landscapes

Since the financial crisis in 2008, more than 50 institutions have been granted a banking license in the UK. The market is becoming increasingly saturated – particularly in the catchall space of the challengers. Many argue that the challenge has already taken place, and in a diverse market, the label is now redundant. ‘Challenger’ remains little more than convenient shorthand and the diversity of an ever-changing market suggests we need some new ways of looking at the strategies of these banks.

As challengers mature into their own niche offerings, the really interesting decisions will be driven less by where they come from and more by where they’re heading. So while this year’s report summarises the state of play in today’s challengers, its main purpose is to outline how they might respond to the drivers of change.

Five key drivers

Over the past year, we have seen a number of emerging trends that show what the drivers for growth will be in banking.

  • Brand - a diverse and crowded market means consolidation is inevitable. Challengers are now fighting a ‘personality war’ to win the trust and recognition of customers.
  • Customer experience - differentiated customer experience is still at the heart of all challenger bank operating models. It’s particularly significant in helping them carve out their niche offering that will make them stick in the market.
  • Technology - challengers are using new technologies to diversify and strengthen their client offering. We are seeing increased forms of platformisation as new emerging tech is picked up by the banks.
  • Deal-making – acquisitions and partnerships are critical for the future of all challengers. Many are recognising the opportunities in partnering in order to leverage external expertise but the strategy, timing and execution of these will be critical.
  • Regulation – like the rest of the banking world, challenger banks are grappling with complex regulatory requirements. Open Banking, the Second Payment Services Directive (PSD2), and the General Data Protection Regulation (GDPR) will deliver as many risks as rewards.


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