5 ways challenger banks add value beyond digital banking

December 29, 2022 9:00 PM

Challenger banks made their name by offering no-fee accounts with early access to paychecks and a slick digital experience. But with a proliferation of startups doing roughly the same thing — and a sea of "niche" options for audiences such as small-business owners or families that increasingly resemble each other — new entrants have had to work harder to stand out.

In 2022, that often meant venturing outside of money management to help users find suitable jobs for their situations, keep an eye on their children from afar, or even go offline to build community. Sometimes, these neobanks charge extra for these services and lessen their reliance on interchange fees; other times, the non-banking services help the neobank differentiate itself from its peers, or even from traditional financial institutions.

"Software focused on solving money-adjacent problems is the biggest competitive threat facing traditional banks today precisely because it's not about taking market share away," Alex Johnson, author of the Fintech Takes newsletter, said in November. "It's about creating new markets, based on problems that customers have always wanted a better solution for, but have never had."

Here are five ways that challenger banks added value beyond digital banking in 2022.

The team at Re:start, a challenger bank in Austin, Texas, runs a Facebook group in Ukrainian to help refugees adapt to American life.

Helping customers find employment

Neobanks aimed at users in vulnerable populations can dangle a particularly useful benefit: assistance in finding work.

Two banking startups for people rebuilding their lives after incarceration pitch their employment and financial services in the same breath. Helping users find jobs "is the key unique differentiator," said Yasaman Hadjibashi, co-founder and CEO of Stretch, in a February interview. "We saw it as our biggest mission to help people earn money in addition to having the place ready where they can store and manage their money."

Frsh, a challenger bank with a similar mission, opened to the public in October, but it offered job-seeking help prior.

"We know employment and banking are part and parcel," said Danny Feldman, CEO and founder of Frsh, in October.

Re:start was founded as a banking app for immigrants and has expanded its mission to welcome Ukrainian and Afghan refugees to the U.S. It runs a Facebook group in Ukrainian to help refugees adapt to American life, including guidance on how to write resumes and find apartments.

Mos, a challenger bank for college students, enhanced its product with a gig-finding feature in August. The company examines each gig's onboarding process, earning potential, time commitment and flexibility to ensure it is suitable for students. The app has counted baby-sitting site Bambino, food delivery platform DoorDash, moving service Bellhop and pet-sitting service Rover among its partners.

A meetup space from Majority in Miami.

Building community

Challenger banks often tout their sophisticated digital features. But some startups have found advantages in going offline to help their users forge human connections.

This prospect is particularly potent for challenger banks that serve small business owners. "Business owners tend to be drawn toward communities of people in their industry," said Ian Benton, senior analyst in digital banking at Javelin Strategy & Research, in a September interview.

For example, Mercury, a challenger bank in San Francisco aimed at startups, launched Mercury Raise in September 2020 to connect founders to other founders, investors and mentors. This program includes a mix of virtual and in-person events that help founders jump-start their seed rounds by meeting investors in Mercury's network, receiving guidance on pitching and raising money for their Series As, finding capital for ecommerce businesses and more. One success story is Slope, a company that helps businesses offer buy now/pay later loans. It raised $24 million in its Series A round in April after participating in a Mercury Raise program.

Majority, a challenger bank for immigrants, hosts meetup spaces in several cities where users can consult with advisors who are from the communities Majority is targeting in those cities and speak their languages, such as Colombian and Cuban immigrants in Miami. Although this move predates 2022, Majority expanded its footprint this year by opening new locations in Miami, Orlando and Hialeah, Florida, as well as Houston.

"For us, it was fundamental to be in our different communities," said Magnus Larsson, CEO and founder of Majority, in May.

Greenwood Financial users can access private clubhouses in Atlanta, Los Angeles and Washington, D.C., thanks to Greenwood's acquisition of The Gathering Spot, a community for Black professionals, earlier this year. Users must pay for the neobank's new Elevate tier, which costs $200 per month. By folding in membership to Valence, a website that helps Black professionals advance their careers, and other perks, Elevate offers more for the customer's money than a single membership to The Gathering Spot.

Granting access to branches

One challenger bank went a step further than online community building and in-person socializing in 2022. It also gave its users access to full-fledged bank branches.

BayaniPay, a digital remittance service that connects the U.S. and the Philippines, announced in March it is launching a challenger bank for Filipino immigrants called BayaniPay Wallet. The underlying bank is East West Bancorp in Pasadena, California, which has $62.5 billion of assets.

Unlike most banking-as-a-service relationships, where the sponsor bank fades into the background, the relationship between the two entities is front and center. For instance, the East West logo and the BayaniPay brand name both appear on the app and debit card. Moreover, BayaniPay customers can turn to any East West branch for customer service rather than calling BayaniPay's team.

"We have been actively training [staff in] our branches to make sure if a customer from the BayaniPay partnership comes into a branch, they will be treated exactly the same as any other East West Bank customer," said Parker Shi, chief operating officer of East West Bank, in March.

Monitoring family members for safety

Fintechs for families, such as Greenlight, GoHenry, Goalsetter and Step, have been gradually fleshing out their features over time to go beyond allowances, chore lists and basic banking to investing, gamified financial education and crypto. The common thread that runs through these banks is that parents have some degree of oversight of their children's banking activity.

Greenlight took this concept a step further in 2022 with a non-financial feature. For $14.98 per month, subscribers to the new Greenlight Infinity tier get a suite of safety benefits, including location sharing, emergency alerts and crash detection. Location sharing lets both parents and children see each other's locations. The SOS alerts let any user send an instant alert to emergency contacts, 911 or both with one tap. For the crash detection, Greenlight turned to a third-party service that uses mobile device sensors to identify collisions based on the level of motion and impact. If a crash is detected, an alert will ask the user if they have been in an accident. If they fail to respond by hitting the "I'm ok" button, the service will automatically notify their emergency contacts and prompt a 911 dispatch.

Helping marginalized communities with family planning

Daylight, a challenger bank for LGBTQ customers, devised a subscription plan in November that packages together services to help its users overcome key logistical, legal and financial challenges when starting a family.

Daylight Grow, whose price is not yet available, will offer users a personalized family creation plan tailored to their needs and access to concierges that provide financial advice and logistical support through text, chat and video. Customers will also obtain access to a database of vetted family attorney networks and IVF and surrogacy clinics, online support groups and family-building loans.

"Family creation is a major life event for queer people and the challenges we face are increasingly more complex than those for non-LGBTQ people," said Billie Simmons, co-founder and chief operating officer of Daylight, in a press release.