Challenger banks appeared in the US after the Great Financial Crisis of 2008, which left many people dissatisfied with traditional banks. A survey from Gallup, conducted in September 2008, showed that the percentage of Americans with “a great deal” or “quite a lot” of confidence in US banks fell to 32% (down 16% since June 2006).
The situation was similar in Italy. Gaetano de Maio, country manager of Revolut in Italy, said in an interview to Business Insider Italy:
While Italians got poorer, banks got richer, making them pay excessive hidden costs and increasing their profits in such a difficult historic moment for the country.
Pros and Cons of Italy’s Challenger Banks
On the one hand, Italy’s challenger banks are more flexible and cheap for customers. They also offer a simpler user experience, more similar to online players like Amazon and Google than to red tapes and signatures required to do simple tasks with a bank. They also offer real-time payment notification, which makes it simpler to spot fraudulent activities.
On the other hand, challenger banks have customer acquisition issues. Traditional banks have an advantage through brand awareness and historical presence in Italy and are further helped by the fact that Italian people are, on average, not yet digital savvy. According to a report from the European Commission, Italy is one of the countries with the lowest score in the Digital Economy and Society (DESI) Index 2018.
Who Are the Italian Challenger Banks
In Italy, the most important challenger banks are Hype, N26, Tinaba, Buddybank, Bunq, Soldo, Revolut.
Hype is a digital bank account launched in 2015 by the Italian bank Banca Sella. It is the first challenger bank launched in Italy. Hype has an associated prepaid card, that you recharge with your bank account. It allows payment using the prepaid credit card (available in a virtual version on the app or in physical version) in Italy, abroad, and on the web. It also allows for sending and receiving money at zero cost. The basic version is free and has daily and annual money threshold, while the plus version costs 1 EUR per month, with no money thresholds. Hype allows also tracking of expenditures and setting budgets.
N26 is a mobile bank launched in 2015 in Germany, which entered Italy in 2017. It allows customers to open a bank account in less than 8 minutes without handmade signatures. It also provides a credit card for paying or withdrawing money.
Tinaba (acronym of This Is Not A Bank) was launched in Italy in 2016 by Matteo Arpe of the Sator Fund, in partnership with the Italian bank Banca Profilo. It is an app for digital payments and money transfer. In Italy, one can also pay Radiotaxi with Tinaba. It has zero costs for subscription and expenses and is entirely digital, without a card needed to operate it.
Buddybank is the mobile bank created by the Italian bank Unicredit, available only for iPhone. It has a personal assistant available 24/7, which customers can contact for banking and leisure requests, via chat or local messages from the bank app. It also has a Mastercard debit card.
Bunq is a Dutch mobile bank, available for smartphones. Bank accounts are opened with the smartphone, and then requests or payments can be made. Customers can also transfer money and do shopping using the Mastercard payment system. The app will track expenses, akin to competitors.
Soldo is a bank account for larger groups of people, such as families or teams of employees. It is also based on the Mastercard payment processing system and includes prepaid cards and an app to receive and send payments via mobile.
Revolut is a UK fintech startup. It was founded in London in 2015 and entered Italy in 2017. Akin to UK competitor Monzo, it offers current accounts with an associated debit card and is pushing into commission-free trading as well.
Among the challenger banks listed above, all present in Italy, only three are actually Italian (Hype, Tinaba and Buddybank), and all three have a link to a traditional bank. The other four are Italian subsidiaries of foreign challenger banks.
Challenger banks are not famous in Italy. If one searches “challenger bank” in Google Trends in the last one and five years, no sufficient data can be displayed. In Google News, the search results are limited to only one page, without any major newspaper reporting on them. Therefore, Italian challenger banks seem to be perfect strangers for two reasons: they come from abroad, and they are not well known. There are many explanations for this fact.
To start with, Italy is a bank-centric environment, where traditional big banks dominate.
Moreover and partly due to that, it is a country lagging behind in fintech investments. According to a recent report from PwC and NetConsulting cube, Italy invested only 33.6m euros in fintech startups in 2016. In addition, there is no Italian fintech business in the Top-100 international ranking provided by KPMG.
From a cultural perspective, Italians are big fans of cash. Osservatorio Community Cashless Society – The European House Ambrosetti says that 86% of Italian transactions have been done with cash in 2017 and that cash circulation increased by 3.8% between 2016 and 2017. The study says also that in Italy ATM money withdrawal increased by 8.9% between 2008 and 2016. In addition, venture capital, private equity, and crowdfunding are not common ways to finance businesses in Italy; most of them rely on money coming from founders’ pockets or from banks. The Startup Survey 2016 presented by Istat and Economic Development Minister showed that 73.2% of innovative Italian startups used financial resources of founders for set-up and over a sixth of startuppers have no interest or trust in venture capital.
This is another sign of the power of traditional Italian banks, which probably need to be ‘challenged’ a bit more.
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