UK Challenger Banks: Market Overview

Players

• According to Banking Tech, there are 102 challenger banks in the UK as of February 2019.
•  Key players in the UK challenger banks market include Monzo, Revolut, Starling Bank, Atom and N26.
• Top six SME challenger banks control about 10.2% of the market.
• In the SME challenger banks segment, top 6 SME challenger banks in the UK based on the number of business current accounts include CYBG (190,000), TSB (100,000), Metro Bank (100,000), Co-operative Bank (90,000), Tide (85,000), and Starling Bank (30,000).

Funding Raised by Key Players

• Monzo raised $93 million in November 2017.
• Atom Bank raised in a total of $140 million in 2017.
• In September 2019, Starling Bank raised $54 million in fresh funding.

UK Challenger Bank Market Growth Dynamics

• According to KPMG, the UK has the most number of challenger banks on account of unsaturated nature of traditional banks and early adoption of digital banking.
• According to Accenture, challenger banks in the UK are growing.
• Further, challenger banks would continue to grow as additional £775 million would be provided under the Alternative Remedies Package to promote competition in the small and medium-sized enterprises (SMEs) market.
• The UK challenger bank industry has grown at a steady pace over the past five years on account of facilitating medium to small size entrepreneurs and full adoption of digital and mobile services.
• According to KPMG, the balance sheets for small challenger banks grew by 22.5% in 2016.
• According to KPMG, the balance sheets for large challenger banks grew by 7.8% in 2016.

Users of Challenger Banks

• According to a study conducted by Censuswide, 1 in 4 millennial and Generation Z demographic groups in the UK use digital-only challenger banks.
• Further, 14% of all the UK bank customers have at least one mobile-only digital banking provider.

YOUR RESEARCH TEAM APPLIED THE FOLLOWING STRATEGY:

#1: ONLINE/TECH ISSUES

• After spinning out from Lloyd bank, customers of TSB, a UK challenger bank, faced access problems for almost two weeks because of its crumbled online platform. This incident impacted 1.3 billion customer records.
• Similarly, Monzo also faced technical issues which caused delays in bank transactions.

SOLUTION:

• Challenger banks are addressing technical issues by upgrading their technology.
• TSB collaborated with IBM to provide data integration and MicroStrategy data exploitation, as well as Teradata, for data acquisition.
• Similarly, Monzo focuses on Faster Payments Gateway, which enables them to avoid dependence on a third party to handle transactions to address technical issues.

#2: SOURCE OF FUNDING

• Bank of England has blocked its two funding schemes, TFS and FLS, which has made a massive impact on the source of funding for challenger banks which borrowed around 25% (£29.5 billion out of £121.3 billion) of TFS funds.

SOLUTION:

• Challenger banks are checking out alternative sources of funding such as crowdfunding and financing from RBS.
• Dozens have secured around £3.8 million from 2,156 investors across 42 countries.
• Key players like Metro (£120 million), Starling (£100 million), and ClearBank (£60 million) got funds from RBS with an agreement to support small and medium-sized companies.

#3: CUSTOMER TRUST

• As per KPMG, traditional banks dominate challenger banks due to lack of customer trust and because they are still considered as supplement banking options rather than as proper banks.

SOLUTION:

• Challenger banks are building new strategies for attracting customers, such as designing friendly mobile apps and encouraging customers to become stakeholders.
•  Most Millennials are focusing on challenger banks as banks like Monzo and Starling offer personalized savings goals tools, which help customers to save money, thereby gaining customer trust.
• Monzo is increasing customer loyalty by collecting feedback on product launches, organizing 8-12 events for customer interaction, and also allowing customers to become stakeholders.

RESEARCH STRATEGY