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Valve’s flagship Half-Life VR game will land in March of 2020

is available across Europe. In 2019, the company expanded to Singapore and Australia and currently has at least 8 million users.n

While Revolut announced that it should launch in the U.S. and Canada by the end of last year, the clock ran out on that prediction. The startup has been very transparent about its expansion plans, even though it sometimes means that you have to wait months or even years before a full rollout.n

For instance, Revolut announced in September 2018 that it would launch in New Zealand, Hong Kong and Japan u201cin the coming months.u201d It later became u201cearly 2019,u201d then u201c2019.u201d India, Brazil, South Africa, Mexico and the UAE have also all been mentioned at some point. In other words: launching a banking product in a new country is hard.n

The U.S. is a tedious market as you have to get a license in all 50 states to operate across the countryn

Monzo has been doing well at home in the U.K. It has attracted 3 million customers and raised u00a3113 million (~$144m) in funding last year from Y Combinatoru2019s Continuity fund. It is expanding to the U.S., but the rollout has been slow.n

Nubank is another well-funded challenger bank. Backed by Tencent, the startup has raised a $400 million Series F round from TCV. According to the WSJ, the startup has a valuation above $10 billion.n

Originally from Brazil, Nubank expanded to Mexico and has plans to expand to Argentina.n

Chime is increasingly looking like the bigger player in the U.S., recently raising a $500 million funding round and reached a valuation of $5.8 billion. It only operates in the U.S.n

Starling Bank and Atom Bank only operate in the U.K. Bunq is based in Amsterdam with a product tailor-made for the Netherlands, but it accepts customers across Europe.n

This isnu2019t meant to be an exhaustive list as itu2019s becoming increasingly hard to cover all challenger banks.n


Subscription-based business modeln

There are a few basic features that separate challenger banks from legacy retail banks. Signing up is extremely simple and only requires a mobile app. The mobile app itself is usually much more polished than traditional banking apps.n

Users receive a Mastercard or Visa debit card that communicates with the companyu2019s server for each transaction. This way, users can receive instant notifications, block and unblock their cards and turn off some features, such as foreign payments, ATM withdrawals and online transactions.n

Challenger banks usually customers promise no markup fees on transactions in foreign currencies, but there are sometimes some limits on this feature.n

So how do these companies make money? When you pay with your card, banks generate a tiny, tiny interchange fee of money on each transaction. Itu2019s really small, but it could become serious revenue at scale with tens of millions or hundreds of millions of users.n

Challenger banks also offer other financial services like insurance products, foreign exchange or consumer credit. Some challenger banks develop those features in house, but many of those features are actually managed by external fintech partners. Challenger banks generate a commission on those products.n

But the most promising product is premium subscriptions. While challenger banks started with free accounts and low, transparent fees, they have been selling premium subscriptions for a fixed monthly fee.n

Challenger banks have become a software-as-a-service industry with a freemium componentn

For example, Revolut offers premium accounts for u20ac7.99 per month with higher limits, some insurance benefits that youu2019d expect from a premium card and access to advanced features, such as cryptocurrencies and disposable virtual cards. Thereu2019s a super premium product for u20ac13.99 called Metal with a metal card design, cashback on card payments and access to a concierge feature.n

This seems a bit counterintuitive, but premium subscriptions have been performing well, according to discussions with people working in the industry. You pay a lot in subscription fees in order to avoid small transactional fees. (And you also get a cool card.)n

Challenger banks have become a software-as-a-service industry with a freemium component. It leads to a premium positioning and high expectations from customers.n


Revolut’s fees top out at u20ac13.99/month.n

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