Across the world a new breed of financial institution is emerging – the challenger bank. While both technology and changing licensing restrictions are key drivers to their rapid rise, the question mark still remains on whether they can build a truly differentiated banking business model – rather than a ‘me-too’ bank, wrapped in a digital skin.

Why does it matter? Well, existing banks are moving fast, investing billions of dollars in their infrastructure so they too can present a truly digital end-to-end experience for their customers. With this digital ‘skin’ often touted as the prime differentiator for a challenger bank, the first mover advantage many have could be a short-lived one.

This is nowhere more evident than here in Australia, where banks are, by and large, spending up big on technology. By the end of 2016, National Australia Bank – with a market cap of approximately $71.7B and an annual IT spend of $1B – expects it will be able to open a bank account for an existing customer in two minutes. NAB’s main rival, Commonwealth Bank of Australia, who completed its core technology upgrade in 2012, is reported to be able to do it today in 5.

While any improvement in internal efficiency and time to service is to be applauded, one wonders if banks are missing an opportunity to really dig deep in order to understand the true problems faced by customers.

So for a small business owner – what exactly are those problems?

Well, putting access to working capital to one side, a lot of their problems are transactional. That is, moving money from A to B, having enough money to move when the due date for payments fall, and managing multiple payment entry and exit points (EFTPOS, online payments, direct debits, credit cards). Keeping track of all of these payment points makes for seriously hard work and reconciliation nightmares.

In today’s omni-channel world, the average small business owner could be doing all of the following:

• Accepting credit and debit payments in store via a merchant acquirer
• Accepting online sales via a payment gateway integration with a shopping cart
• Accepting mobile in-store purchases via another payment gateway
• Invoicing clients with PayPal or Stripe (‘Pay now’ button on invoices)
• Collecting recurring subscription payments via another payment gateway integration

That’s potentially up to five different providers already – and possibly one very confused business owner. Oh and let’s not forget the challenges that come with handling 5 streams of data being fed into various point of sale and accounting software applications, waiting to be reconciled with bank feeds, that all settle at different times, and sometimes not even with the correct amounts.

In theory a challenger bank, with the ability to issue bank accounts and access a jurisdiction’s clearing and settlement hubs, could radically streamline transactional banking needs for small businesses. It would require deep vendor integrations and partnerships, but the creation of a real differentiated offering in the market would be the reward.

Challenger banks certainly need to find an ‘unfair advantage’ beyond a ‘better online experience’ if they want to crack the market. Solving real problems incumbent banks have thus far shied away from will therefore be the foot in the door.