The Challenger Bank Playbook: What Mid-sized Banks can learn from Revolut, Wise, Modulr and Starling Bank
- virna661
- Aug 26
- 8 min read
Introduction: Beyond the Hype
The rise of challenger banks has been the defining story of the last decade in financial services. Brands like Revolut have become synonymous with
disruption, pushing the boundaries of what a financial institution can be. For mid-sized financial services (FS) firms, watching this revolution can be equal parts inspiring and intimidating. The pressure to innovate is immense, but the path is fraught with risk.
The critical mistake would be to view Revolut's model as a single, monolithic blueprint for success. In reality, the challenger landscape is diverse, with each player employing a distinct operational strategy with varying outcomes. The wisdom for mid-sized firms lies not in copying one model, but in strategically cherry-picking the right lessons from the right players.
This article attempts to deconstruct the operating models of Revolut, Wise, Modulr, and draws on supporting insights from other players such as N26, Solarisbank and Curve, to provide a clear, actionable guide on what to emulate, and what to avoid.
1. The Challenger Spectrum: A Comparative Analysis
To understand the lessons, we must first understand the models. The following table contrasts the key operational strategies of the leading challengers.
Table 1:
Challenger Bank Business Model Comparison
Key Aspects | Revolut | Wise | Modulr | Starling Bank |
|---|---|---|---|---|
Core Offering | Super-app (banking, crypto, trading) | Low cost international transfers | Embedded banking APIs (B2B) | SME / Retail digital bank |
Primary revenue streams | Interchange, subscriptions, FX markup | Transparent FX fees | API usage, transaction fees | Interchange, lending, B2B services |
Tech & automation | Heavy in-house development, AI driven | Proprietary multi-currency ledger | Cloud native, API first | In-house core banking platform |
Regulatory posture | "Move fast, fix later" | Compliance first, built-in transparency | Fully licensed (e-money) | Fully licensed UK bank |
Growth strategy | Hyper growth (40M+ users, 30+ markets) | Product led, gradual global expansion | Focused on B2B embedded finance | Steady UK growth, cautious expansion |
Profitability status | Profitable, with recent losses | Profitable since 2017 | Sustainable B2B margins | Profitable (2022) |
Immediate Takeaways:
Revolut is the high-risk, high-growth "super-app" aspirant.
Wise is the focused, profitable, and compliance-conscious specialist.
Modulr is the B2B enabler, powering other businesses through APIs.
Starling is the proof that a focused, fully-licensed digital bank can be sustainably profitable.
2. Lessons to Embrace: The Good
A. Hyper-Focus on Customer-Centric Tech (From Revolut & Starling)
Revolut's seamless onboarding and real-time spending analytics set a new standard for user experience. Starling's connected card spending and easy savings "spaces" show deep customer understanding.
Actionable Takeaway: You don't need a £500M tech budget. Prioritise a mobile-first UX, invest in self-service tools (e.g., chatbots for basic queries), and implement real-time notifications for transactions and fraud alerts. Partner with regtech firms to automate KYC and onboarding.
"The customer experience and compliance are no longer separate functions; they are converging." (Maurice Lisi, former Head of Compliance, a leading fintech, 2024).
B. Agile, Data-Driven Product Iteration (From All)
These players release features rapidly because they use cloud-native, modular tech stacks. They leverage data for everything from fraud detection (Revolut) to personalized offers (Starling).
Less than a quarter of financial services firms currently identify as ‘automation drivers’ (Rossum’s Document Automation Trends 2025 report
Actionable Takeaway: Adopt a test-and-learn approach. Use pilot programs and A/B testing for new features. Leverage cloud analytics (AWS, Google Cloud) to gain actionable insights from your data, starting with fraud prevention and customer segmentation.
C. Operational Efficiency via Automation & B2B Partnerships (From Modulr & Wise)
Modulr automates entire payment flows for businesses via API, while Wise's automated matching engine keeps costs low. These are their core competitive advantage. For these players, technology is not just about a consumer-facing app, but an engine of operational efficiency.
Actionable Takeaway: Target low-hanging fruit for automation: document processing (OCR for KYC), back-office reconciliation, and Tier-1 customer support queries. This frees up human capital for higher-value tasks. Seriously consider the embedded finance opportunity; you don’t have to compete with giants, you can power them.
“The future of financial services is defined by partnership and the collaboration within the ecosystem.” (Pedro Ferreira, finance and payments expert, 2024)
D. Niche Dominance Over Jack-of-All-Trades (From Wise, Modulr & Starling)
Wise didn't try to be a bank; it set out to solve one problem brilliantly: international transfers. Modulr ignored the retail market entirely to become an embedded finance leader. Starling focused on dominating the UK SME market.
Actionable Takeaway: You cannot out-Revolut Revolut. Double down on your niche. Are you the best at serving local SMEs? Are you a leader in specific lending products? Own that space completely before considering radical expansion.
A 2024 Gartner report highlights that the primary driver for digital banking platform investment is creating omnichannel capabilities, followed by improving customer experience. This proves that customer centricity, not product sprawl, is the winning strategy for firms with limited resources.
3. Pitfalls to Avoid: The Ugly
The biggest reason a mid-sized firm should not try to imitate a hyper-growth challenger is that they simply don't have the same risk tolerance. Unlike well-funded startups, a single major fine or a failed market entry can be catastrophic for an established firm. With that in mind, here are the pitfalls to avoid.
A. The “Move Fast and Break Things” Culture (A warning from Revolut)
Revolut's aggressive growth led to regulatory fines (e.g., Lithuania's €200K penalty for late AML filings) and reputational damage from employee burnout stories. Revolut reported a loss of over £33 million in its 2023 annual report, even while revenues were soaring (Financial Times, 2023). This demonstrates that growth at all costs can destroy profitability.
46% of finance leaders label themselves or their departments as “Luddite”, reflecting a reluctance to embrace innovation. (Rossum, 2025) this mindset is as dangerous as a reckless ‘move fast’ approach as it leaves firms vulnerable to disruption.
B. Spray-and-Pray Geographic Expansion (N26’s Cautionary Tale)
A cautionary example beyond our core four is N26, whose rapid US expansion without the necessary local compliance expertise or market fit, resulted a costly and embarrassing exit in 2022. The lack of a tailored, differentiated product and a reliance on a single banking partner proved to be key vulnerabilities (CB Insights, 2022).
Revolut's use of contractors created knowledge gaps. N26's reliance on its banking partner, Solarisbank (which faced its own regulatory issues), became a vulnerability. FS requires deep, retained expertise, especially in compliance and risk. A stable, invested team is crucial for long-term customer trust and regulatory relationships.
4. Case Studies in Sustainable Strategy
Case Study 1: Wise's Compliance-First, Profitable Growth
Strategy: Instead of hidden fees, Wise built a brand on radical transparency. It secured licenses before entering new markets and built a proprietary, automated ledger system that made cross-border transfers efficient and cheap.
Result: Profitability achieved in 2017, a rarity in fintech. Its sustained growth is built on trust and a superior product.
Lesson for Mid-Sized Firms: Build compliance into your product's DNA. Trust is a competitive moat. Solving one core problem perfectly is a viable and profitable strategy.
Case Study 2: Modulr's B2B Embedded Finance Play
Strategy: While others fought for retail wallets, Modulr provided the APIs that let other businesses (e.g., Sage, Revolut itself) embed financial services like payments and accounts into their own platforms.
Result: Predictable B2B revenue streams, lower customer acquisition costs, and scalable, profitable unit economics.
Lesson for Mid-Sized Firms: You don't have to be B2C to win. The B2B embedded finance market is massive and often offers a clearer path to profitability (Deloitte, 2023).
Case Study 3: Starling's Focused Path to Profitability
Strategy: Instead of expanding globally, Starling focused on winning in the UK; first with retail accounts, then brilliantly targeting underserved SMEs with a tailored suite of tools. Starling has been profitable since 2020, with its 2023 pre-tax profit rising by 193% year-on-year.
Result: Became the first of the new UK digital banks to report annual profitability.
Lesson for Mid-Sized Firms: Depth over breadth. Dominating a specific geographic or vertical market is a sustainable model. Understand your core customer intimately and serve them better than anyone else.
STRATEGIC INSIGHT:
Profitability in fintech is not a myth. It is a mindset.
Wise, Modulr and Starling prove that clear focus, strong governance, and customer-centred innovation can deliver both scale and sustainability.
5. The Hybrid Model: A Realistic Playbook for Mid-Sized Firms
The winning strategy is for mid-sized firms is a hybrid approach, taking the best from each challenger and building a playbook for sustainable growth. The graphic below serves as a visual guide for this model, emphasising that trust and efficiency are the foundations for a phased approach to expansion.
Figure 1:
Scaling Curve – Trust Before Speed
“If you can’t scale trust, you can’t scale anything.”— Anne Boden, Founder of Starling Bank
This three-stage model demonstrates how to build on a solid foundation before attempting to scale.
Adopt Wise's Compliance-First Mindset: Prioritize regulatory readiness and transparency. Make it a selling point.
Emulate Modulr's Automation & B2B Focus: Automate ruthlessly for efficiency. Seriously consider the embedded finance as a growth lever.
Copy Starling's Customer Obsession & Focus: Go deep, not wide. Own your niche before expanding.
Use Revolut's Tech Agility (Safely): Implement agile development and data-driven decisioning, but within a robust risk and compliance framework.
Table 2:
The Mid-Sized Firm's Strategic Playbook
Tactic | Challenger Inspiration | How to Adapt it |
Improve CX | Revolut, Starling | Partner with UX/UI firm, implement key tech e.g., real time alerts |
Enter new markets | Wise | Secure licences first, use local partners, test a pilot |
Launch new products | All | Use agile 'test and learn' pilots, leverage customer feedback loops |
Drive efficiency | Modulr, Wise | Automate one key process this year (e.g., KYC, reconciliations) |
Achieve profitability | Wise, Starling | Focus on unit economics, dominate a niche before expanding |
Conclusion: Innovate, But With Guardrails
The story of challenger banks is not a singular tale of disruption, it is a series of experiments with clear winners and losers. For mid-sized FS firms, the lesson is clear:
Do not replicate the "break things" culture of Revolut's early days. Instead, emulate the disciplined, customer-centric, and compliance-aware models of Wise, Modulr, and Starling.
The goal is not to become a neobank, but rather to leverage the best of their playbooks to become a more agile, efficient, and customer-focused version of your own firm. By balancing innovation with sustainability, mid-sized firms can not only survive this wave of change but thrive within it.
A Look to the Future: The Path Forward
The future of financial services will be increasingly defined by embedded finance and open banking, making the B2B model even more compelling. As McKinsey & Company notes in its 2023 report, the new era for fintechs is all about moving from a hyper-growth "sprint" to a "steady and disciplined run" focused on profitable, sustainable growth. For mid-sized firms, this shift is a massive advantage.
By focusing on a strong, profitable core and strategically leveraging technology to enhance, not replace, your existing business, you can build a more resilient and forward-looking organisation. Challenger banks have shown what’s possible. Now it’s your turn to show what’s sustainable.
Sources & Further Reading
Financial Times – "Revolut's Losses Widen Despite Revenue Surge" (2023)
McKinsey & Company – "The Fintech Decade: A Retrospective" (2023)
CB Insights – "Why N26 Failed in the US" (2022)
Deloitte – "Embedded Finance: A New Ecosystem" (2023)
Wise PLC – Annual Reports & Investor Presentations
Starling Bank – Annual Reports & Investor Presentations
Citizens Bank – "2024 Report: Trends in using AI with financial management" (2024)
Delta Capita – "Agile Delivery with Embedded Compliance" (2024)
Ferreira, Pedro. “ACI Worldwide and Worldpay: Strengthening the Backbone of Global Payments.” Finance Magnates (2024)
Lisi, Maurice. "The convergence of fintech and compliance." (2024)
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