15 new banks could enter market

In a new report entitled ‘Who Are You Calling a Challenger?’, London-based PricewaterhouseCoopers (PwC) stated that it was working with 15 companies which were potential entrants to the banking market.

On top of this, it claimed there were at least eight banking licence applications being processed as of January 2017.

PwC’s report claimed new banks were now shaking off the ‘challenger’ label by focusing on distinctive needs rather than attempting to replace the main high street banks.

This was supported by research showing that in a survey of more than 2,000 consumers, 54% would prefer to bank with multiple providers in return for the best deal on products they offer.

John Lyons, head of retail and commercial banking at PwC, said: “The term ‘challenger’ implies the ‘plucky underdog’, a label that doesn’t hold for what are in some cases long-established and significant businesses.

“Many of these banks’ distinctive offerings mean they do not need to compete directly with the large high street banks to succeed.

“Their USPs are often around client franchise or need, geographic location or product specialism. 

“Specialist lenders in particular aspire to operate in the gaps left by other banks, typically addressing customers with more complex needs rather than the ‘vanilla prime’ segments.”

Last month, Bridging & Commercial revealed that the PRA had received 13 banking licence applications since 1st January 2016.

This was followed by news that an exodus of larger banks in the wake of Brexit could present an opportunity for the challenger market.

In 2015, challenger banks supplied 200,000 British consumers with mortgages and increased their share of small- and medium-sized enterprise gross lending to 20%.

Despite this growth, PwC also found that 68% of consumers think a branch is essential for them to open a new current account.

By contrast, only 25% of respondents believed a mobile app was essential.

This comes despite many new banks – such as Monzo or Starling – not currently operating branch systems.

“To be successful, each bank needs to overcome specific – and not insignificant – challenges,” added John.

“For example, mid-tier high street banks face pressure to transform their operating models and differentiate their propositions, while digital-only players seek to build awareness with customers and attract them with distinctive service offerings.”