Challenger bank


Challenger banks are small, recently created retail banks in the United Kingdom that compete directly with the longer-established banks in the country, sometimes by specialising in areas underserved by the "big four" banks. As well as new entrants to the market, some challenger banks were created following divestment from larger banking groups or wind-down of a failed large bank.
The banks distinguish themselves from the historic banks by modern financial technology practices, such as online-only operations, that avoid the costs and complexities of traditional banking. In order to be defined as a "bank", the company must be authorised to accept retail deposits by the UK financial regulator the Prudential Regulation Authority.

History

Prior to changes in the regulatory landscape in the UK financial services industry, setting up a new bank, with a full UK banking licence, was extremely expensive and time-consuming. This led to a very small number of banks dominating the UK market - the so-called Big Four - with virtually no competition at all. Indeed, when Metro Bank received their license in 2010, it was the first one to have been issued by the UK government in 100 years.
In the wake of the 2008 financial crisis, it was decided to open the market up to new banks. After a period of consultation, the regulation to enable this formed part of the Financial Services Act 2012, which came into force on 1 April 2013. A summary and assessment from Harvard Law School can be accessed online.
To assist new firms to enter the banking market, the PRA, part of the Bank of England, set up their New Bank Start-up Unit which guides firms through the process from an expression of interest, through the application process, to 'authorisation with restrictions' if appropriate, and finally to those restrictions being lifted and the firm being granted a full banking license.
In July 2014, the PRA, together with their co-regulators, the Financial Conduct Authority published a review of the requirements, one year on.

List of challenger banks

This list contains notable companies that have received PRA authorisations to operate as banks in the UK:
BankEstablishedStatus
Aldermore2009Aldermore does not appear on the official Bank of England as it gained its banking license through the acquisition of Ruffler Bank in 2009. It has since been sold to First Rand of South Africa.
Atom Bank2015Offering savings and mortgages, and is entirely app-based.
BFC Bank Limited2015A subsidiary of the
Chetwood Financial Services2016 are a fully licensed bank but are not allowed to conduct any consumer buy-to-let mortgage business.
Civilised Bank2017Civilised Bank is the only challenger bank to date that has , having been one in May 2017 and becoming deregulated in May 2018. It has since to Allica Bank and have now launched, currently offering a single product, a one-year fixed term savings account under a limited UK banking license known as a .
ClearBank Limited2016 claim to be “the UK's first new clearing bank in more than 250 years”.
Focus FS Limited / Monzo Bank Limited2016One of the early app-based banks, Monzo had 3.5 million customers as of February, 2020.
Metro Bank2010The first high street bank to launch in the UK in over 150 years. Metro Bank in 2019 of £130.8m after an accounting issue, in stark contrast to profits of £40.6m in 2018. As a result, they have scaled back plans for new branches from 71 over the next three years to just 24.
N262016Based in Berlin, this app-based bank in to the UK and is now experiencing cyber-security issues, losing customers as a result. It announced in February 2020 that it would be on April 15, 2020, due to difficulties around Brexit.
OakNorth2015Provides business and property loans to SMEs.
Shawbrook Bank2011Provides savings, business finance, property finance, personal loans.
Starling Bank2014Starling Bank was founded by former Allied Irish Banks COO, Anne Boden, in January 2014.
Tandem2015In January 2018, Tandem Money Limited acquired Harrods Bank Limited and then changed the name to ‘Tandem Bank Limited’.
Virgin Money1995Virgin Money UK plc is a holding company that owns Clydesdale Bank plc, which in turn trades as Clydesdale Bank, Yorkshire Bank and Virgin Money. It was originally set up by National Australia Bank in February 2016, when it was called CYBG plc.