top of page

Challenging the Challengers

Actions credit unions can take to compete against challenger banks

Perhaps you have heard of Chime, Varo, or Brightwell? What do they have in common? They are all challenger banks. A challenger bank is typically a smaller bank that aims to compete with traditional banks by leveraging technology. Most challenger banks are digital or app-based without a physical branch system. This structure provides a considerable benefit to the challenger bank because they can avoid the high costs of running in-person branches and use the money saved to deliver better digital service and product innovation, resulting in lower costs to consumers. The apparent target of Challengers is those who embrace technology, primarily Millenials and Gen Z.

Because of their smooth digital and app experience, many challengers so a rather nice uptick in uses due to the pandemic. Challengers banks were able to process and deposit stimulus payments faster than traditional banks. This efficiency was appreciated by those who might have been living paycheck to paycheck or who lost a paycheck during the pandemic.

How much of a challenge are these banks?

Chime is the market leader with a reported eight million primary account holder, making it the fifth-biggest bank in the US. It offers no hidden fees, early payments of a paycheck, and a "spot me" feature that provides customers up to $100 on debit card purchases to be paid back.

Varo has a reported three million accounts as of February and was the first challenger to acquire a national banking charger. This means they can provide loans, wire transfers, and joint accounts to their customers.

Brightwell is an excellent example of the niche that challengers can fill. Brightwell focuses on cross-border payments and financial services for business with employees dispersed worldwide. This makes them appealing to larger businesses with international workforces.

These and many challenger banks offer ease of access via technology and value with lower fees and solving their users' key problems.

What can credit unions do to challenge these challenges?

Make it all about the member and clearly get their arms and strategy around delivering value to the member. To clarify and deliver value to members, let's step back and review the problem the credit union solves for the member. Members joined a credit union to gain access to financial products and services. There are four fundamental member problems.

  1. Transportation problem - The member needs transportation (not an auto loan), and the credit union is the conduit to transportation.

  2. Shelter problem - Like transportation, the member needs a place to call home (not a mortgage), and again the credit union is the conduit to shelter.

  3. Travel and Play - The member has desires for either travel and play. They need a financial partner that will help them achieve these goals within their current financial condition.

  4. Rainy day and Retirement funds. - The member needs a financial partner to help set them up short-term and long-term deposits.

A member may find themselves with a variety of these needs. They may have shelter but are looking to downsize. They may want to travel but don't know how to save. A member's financial needs describe the member's current financial journey. That journey is leading them to a financial destination that is the member's true financial north. The member's true financial north traditionally focuses on a variation of financial security. It may be retirement, and it may be the first-time home purchase; it may be a 6th car purchase. Members want to have the funds when they need them to make their financial dreams come true, to seek their true financial worth.

And wherever the financial destination is, there is data behind it. Data can come from a variety of sources, including the core, MCIF, loan origination system, payment system, and more. All this data is holding information about the member's current financial condition and their next financial need. It is up to the credit union to fulfill it.

As a credit union embarks on its data journey to harness data to improve member's lives, the first step is to start with the member and 1. identify the problem the credit union solves for the member. 2. identify the data needed to clarify the member's true financial north.

This is, of course, no easy task but well worth it. Starting with the member as the focus will give the credit union clarity in creating a member-centric data use case that will ideally solve more than the member problem but the challenger problem as well.


Curious about the current state of data at your

credit union?

Take this quick

Found at the bottom of the page.


Where can I fill my data knowledge gaps?

With a stop at the

Data Education Center.

We believe that data transformation doesn't have to feel overwhelming or expensive to be impactful. After helping over 600 credit union leaders launch their data journeys, we have identified several consistent knowledge gaps. We have worked hard to fill these gaps with a variety of educational artifacts:


What if I want something more? Does someone offer data education classes with real-world applications?

Yep, that is what we do, of course, and so much more. To learn more, please review our data transformation institute

36 views0 comments


bottom of page