When RBS was bailed out by the UK government during the financial crisis, one of the conditions was that the bank coughed up £425 million to help rivals invest in their capabilities, which was topped up by the EU and UK treasury to a total of £775 million. In addition to favourable policy, banks and lending have been able to thrive amid an ever-rising property market, low interest rates and ongoing economic growth.Ī big boost to challenger banks in recent years has been in the form of funding, including the Bank of England's (BoE’s) Term Funding Scheme and a pot of cash that has been made available to smaller banks as part of the bailout of RBS. The UK government has intervened in several industries in the last few years, encouraging new entrants and more competition in banking as well as other sectors such as the energy supply sector. Challenger banks have had all they needed over recent years
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Lending is the driver of the business and 77% of this part of the business is geared toward buy-to-let and SME lending, with the other 23% based around residential lending. OneSavings Bank focuses on specialist mortgage lending to both personal and business customers while offering cash savings products to consumers. As for businesses, the bank allows SME’s to deposit funds, so it isn’t as reliant on customer deposits and it plans to introduce a business current account by the end of this year. But the firm does have a notable branch portfolio. Virgin Money is one of the banks that is based online, meaning its digital offering is extremely important. Virgin Money’s strategy is moving toward two new business areas, small and midsize enterprise (SME) and digital banking.
Generating cash from deposits and lending is the core of the business. The bank is weighted toward the ‘underserved’ business banking market, which accounts for over half of Metro Bank’s business.
Metro Bank was the first new high street bank to be launched in over a century when it opened its doors in 2010, and now has 55 branches. The challenger banks that have emerged do directly compete with each other and the big banks in certain areas, but each of them have differentiated themselves to give investors a choice when considering where to put their investments. Meanwhile, the likes of payment protection insurance (PPI), cases of mis-selling, LIBOR-rigging and healthy banker bonuses have all tarnished the ‘big four’ but despite the growing stain on the sector’s image, they have remained dominant in the market, even if smaller rivals have found their feet.īut the likes of RBS, Lloyds and Barclays have all recently drawn a line under some major legal issues that have casted a shadow over their businesses for the past decade or so, and are returning to growth and preparing to flex their muscles at a time when the assistance that has allowed challenger banks to thrive in recent years is coming to an end.Ĭhallenger banks are looking to leverage the rapid development in technology and win over customers by capitalising on the failures that the big banks have succumbed to in the past, but the winds are turning from tail to head, and the pressure is building. The UK government still owns 71% of RBS after the £46 billion bailout, and the shares sold so far have been at a loss, while the taxpayer’s stake in Lloyds was only sold off last year for a minor profit. The so-called ‘big four’ have all been plagued by bad behaviour since the financial crisis. R5 2400G - Noctua NH-D14 - Asus Prime X370-Pro - 16gb G.Challenger banks have had all the encouragement behind them to take on the traditional banks that monopolise the market, particularly HSBC, Barclays, Lloyds Banking Group and the Royal Bank of Scotland (RBS).
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