It has long been the case that the ‘big five’ have dominated the UK banking scene. In 2012, those five banks accounted for roughly 90 per cent of the market share in Britain in terms of customer numbers and total lending figures.
However, there have been a number of new entrants in the past few years that are shaking things up. Furthermore, this looks like a trend that is likely to continue. The FCA recently stated that it has had 21 requests from firms looking to launch new banks next year. Clearly there is strong appetite out there for new entrants to enter the banking industry and this can only be good news.
Disillusionment
The average customer on the high street has grown disillusioned with the current UK banking set-up. Most people in this country blame bankers for the financial crisis – and with good reason. It was the risky ‘casino’ activities and imprudent controls that caused much of the problems for banks; it was those same banks that were eventually bailed out by the UK taxpayer. It is imperative more competition is encouraged within the UK banking sector, in particular firms targeting the underserved segments of the population. These include serving those customers in remote rural areas where access to high street branches is not practical; or opening up access to alternative finance for small companies that are struggling to access traditional lending; or allowing those with a blip on an otherwise unblemished credit score to get onto the housing ladder. These are customers that break the traditional mould and these new banks should be targeting them.
This is where the challenger banks come in. New banks have been formed in the wake of the financial crisis to provide a credible alternative that customers are crying out for. The British public and other banks should welcome the 21 firms that have filed applications with the FCA. However, they need to ensure that a single concept informs their business approach at all times: putting customers at the heart of what they do.
The average consumer on the street is wiser and less trusting compared to five years ago; the financial crisis has left its scar on the UK population. Today, customers are wary, more financially astute and certainly hesitant to place their trust in banks. Transparency, great customer service and acting in the interests of your clients is therefore imperative.
Trust
For me, this is a basic necessity in running a bank. Being able to gain the trust of your customers should be the main priority for any challenger bank. The simplest and most effective way to do this is to build secure, long-lasting relationships with clients. Nobody wants to be put on hold or put through to an automated message when speaking to his bank. I also think it is important for a customer to be able to speak to the same person every time they call their bank. That same person should know the ins and outs of the customer’s story and seek to understand what they need.
Expert knowledge also needs to be at the forefront of a new bank’s strategy. For too long, banks have hired staff who are there to push products onto people that may or may not need them.
A one-size-fits-all approach is doomed to fail and customers need to feel like individuals with individual needs. So recruiting and training well-qualified staff is essential.
I believe too that the days are numbered for the traditional branch model of banking. Nowadays technology allows you to still have face-to-face contact from the comfort of your home or office and this is something the banking industry needs to embrace.
How else can a new challenger bank differentiate itself from the traditional high street banks? Well, it is clear the traditional banks are more reluctant than ever to lend to small businesses. Such firms are the lifeblood of the economy and I wholeheartedly believe the UK’s economy will only flourish in the future if small and medium enterprises are given the resources they need to grow.
On that point, it was recently announced that RBS is to sell off some of its branches to relaunch the Williams & Glyn’s brand as a challenger bank. It is expected to debut in 2015. I welcome this; in fact, I think the RBS break-up should be more radical in order to drive increased competition in SME banking in particular.
While the current plans may have an impact on the retail banking side of things, they will do little to stimulate business growth or support SMEs. This could be achieved by breaking up RBS’s business banking services. If it is simply a branch sell-off, then there is no fundamental change taking place.
SMEs
The government has rightly placed huge emphasis on SMEs in driving economic recovery and long-term growth, but the SME banking market appears to be off the table when it comes to competition. Make no mistake, the small business market will be plagued by the same lack of competition as seen in the retail market.
While many customers are disillusioned with the big banks, people and businesses can be reluctant to place their money into a financial institution they have not heard of, so building a good reputation will be a long haul. It is undoubtedly tough to break into the sector, and the 21 applicants need to ensure they are in it for the long term. However, if the hard work is put in, the rewards for UK plc could be huge; a truly competitive banking system that puts consumers at the heart of their business models.
I fully welcome more challenger banks entering the market. What both I, and undoubtedly the British public want are credible alternatives in the banking sector. Perhaps, then, UK customers will have a new generation of banks to choose from.
Phillip Monks is chief executive officer of Aldermore Bank
The Financial Conduct Authority recently stated that it has had 21 requests from firms looking to launch new banks in 2014
The average consumer on the street is wiser and less trusting compared to five years ago
The government has rightly placed huge emphasis on SMEs in driving economic recovery and long-term growth
