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Challenger Banks: What You Need to Know

Challenger Banks: What You Need to Know


Jenius Bank Team7/27/2023 • Updated 4/4/2024
Man walking past a bank and managing finances on his cell phone.

Challenger banks help make managing your money as simple as unlocking your phone.

Is your bank keeping up with the times? Some traditional banks are stuck in the past, relying on brick-and-mortar branches and a dated digital experience. That’s where challenger banks, like us, come in.

Challenger banks prioritize modern, digital, and convenient financial services. They also tend to have a customer-centric philosophy and create products and experiences that support their customers’ goals and help make managing their money easier.

Let’s look at how challenger banks are redefining the banking world.

Key Takeaways

  • Challenger banks are modern alternatives to traditional banks.

  • They offer customer-centric services with a focus on the digital experience.

  • The main benefits are mobile access, products with better rates and terms, and fee transparency.

Decoding Banking Buzzwords: Neobanks, Challenger Banks, and Digital Banks

The term “challenger bank” emerged in the U.K. after the 2008 financial crisis that caused millions of people to lose money in the financial markets and is now used universally to refer to any bank, including neobanks and digital banks, that aims to change the status quo.1

The definitions of a neobank, digital bank, and challenger bank are somewhat fluid. Here’s a breakdown of a common way of differentiating them.

  • Neobank: A fintech company that partners with chartered banks to provide services and doesn’t possess its own bank charter.

  • Challenger Bank: A chartered bank that operates almost exclusively online but may have some physical locations. These banks are dedicated to challenging the outdated banking systems and putting customer experience at the forefront of their model.

  • Digital Bank: A chartered bank that operates exclusively online and doesn’t have any physical branches. They focus on creating fully digital tools and experiences for their customers.

Most digital banks tend to fit this definition of a challenger bank. However, not all challenger banks are fully digital banks—some have physical locations.

Jenius Bank isn’t a neobank because we have a banking charter. However, we are a digital bank, and we consider ourselves a challenger bank too.

5 Ways Challenger Banks Set Themselves Apart

Challenger banks claim to make banking and money management easier for customers, often by leveraging technology and placing customers front and center in their strategies and business decisions.

These banks also seek to offer customers the same protections and benefits that traditional banks pride themselves on, such as FDIC insurance.

In many ways, the challenger bank model is looking to combine the best of both the digital and traditional worlds.

1. Top-Notch Mobile Banking Experiences

Wish you could manage your money with just a few taps on your phone? Challenger banks aim to make this a reality, allowing customers to use their mobile app or website to perform most tasks, like depositing checks, transferring funds, and paying bills.

A leading challenger bank would also work to make account opening quick and easy and offer digital applications for loan approvals in minutes. Any steps that transform consumers into customers quickly are good for business!

2. Better Rates and Terms

Unlike traditional banks who typically offer rates under 0.50%, challenger banks usually offer market-leading rates on their savings accounts.2 They are usually able to do so because they tend to have fewer, or no, physical locations, and therefore, less overhead cost.

As part of their customer-centric philosophy, they choose to pass those savings on to their customers through better rates. For example, while Annual Percentage Yield (APY) varies from bank to bank, it’s generally between 20 and 25 times higher than those offered by traditional banks.3˒4

3. Transparent Fee Structures

Research shows that consumers do not like surprise fees. That’s not surprising! Challenger banks tend to make more effort to disclose fees openly on their website or app so that customers don’t have to hunt for information in the fine print.

Even better, most of these banks have almost no fees, meaning customers don’t have to worry about things like overdraft, monthly maintenance, or late payment charges. (Pssst! Jenius Bank doesn’t have any fees!)

4. Protected Funds

While we didn’t spend a lot of time here talking about neobanks, one of the main differentiators between neobanks and challenger banks is a bank charter.

In the U.S., a bank charter makes the institution eligible for FDIC insurance. FDIC insurance protects certain deposit accounts, such as savings and checking accounts, in the event that a bank fails. According to the FDIC, your deposits are insured up to $250,000, per depositor, per account type, per insured bank for each account ownership category.5 It’s no surprise that many customers prefer to have that peace of mind when it comes to their hard-earned money.

While many neobanks partner with chartered banks for FDIC insurance on accounts, this isn’t always guaranteed with a neobank. Consumers should investigate if their money will be insured before opening an account.

On the other hand, challenger banks by definition are chartered, meaning they have proven their viability to regulators just like traditional banks. Discerning customers often see chartered banks as a more trustworthy place to keep their money.

5. Customer-Centric Philosophy

Born from a desire to create banks that put the customer first, challenger banks tend to invest in their customer service teams and the customer experience as a whole. Of course, that investment and focus vary from bank to bank. At Jenius Bank, access to convenient and live customer support is a top priority... our phone number is listed prominently on our home page.

Research reinforces these investment decisions. Studies show that digital-only banks that provide easy access to their customer service teams via phone and live support see increases in customer satisfaction overall.6˒7

Why the increase in customer satisfaction? Even if you value technology and digital experience, sometimes you just need to talk to a human to when it comes to your money.

Final Thoughts

You shouldn’t have to choose between security and convenience, especially when it comes to your money. Challenger banks, with their customer-centric approach, have the goal of giving you the security of a traditional bank alongside a modern digital experience.

At Jenius Bank, we’re proud to be a challenger bank, and with that, we’re challenging experiences that just don’t make sense in traditional banking.

We’re built from input from consumers like you, offering market leading rates and 24/7 help from humans. But, as a division of a state chartered bank, we’re also very happy to offer FDIC insurance, up to the maximum allowed by law, on our customers’ deposit accounts.

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