The global rise of neobanks and challenger banks: disruption in the banking sector

Purpose- This paper explores the rise of neobanks and challenger banks, analysing their transformative impact on the traditional banking sector. It argues these technology-driven entities reshape financial services through efficient, customer-centric solutions meeting modern consumer preferences. Methodology-The study employs a qualitative research approach via a comprehensive literature review, examining academic articles, industry reports, and case studies. Findings- Findings reveal a significant shift towards digital banking, driven by historical context, technological advancements (like mobile banking, AI, open banking APIs), and changing consumer behavior favouring convenience, transparency, cost-effectiveness, and personalization. Detailed case studies of neobanks like Revolut, Chime, and Nubank illustrate successful strategies disrupting traditional norms. These banks leverage technology for lower fees, enhanced user experience, and financial inclusion. The analysis highlights the pressure on traditional banks to innovate and adapt amidst this digital transformation. Conclusion- Neobanks and challenger banks represent a fundamental shift, compelling traditional institutions to embrace digital transformation to remain competitive. The paper underscores the need for adaptation and addresses the regulatory challenges posed by these emerging financial players. Keywords: Neobanks, challenger banks, digital banking, fintech, financial innovation, banking disruption, consumer behavior.