Challenger banks are small, recently created
retail bank
Retail banking, also known as consumer banking or personal banking, is the provision of services by a bank to the general public, rather than to companies, corporations or other banks, which are often described as wholesale banking. Banking serv ...
s that compete directly with the longer-established banks in the UK,
sometimes by specialising in areas underserved by the
"big four" banks (
Barclays
Barclays () is a British multinational universal bank, headquartered in London, England. Barclays operates as two divisions, Barclays UK and Barclays International, supported by a service company, Barclays Execution Services.
Barclays traces ...
,
HSBC
HSBC Holdings plc is a British multinational universal bank and financial services holding company. It is the largest bank in Europe by total assets ahead of BNP Paribas, with US$2.953 trillion as of December 2021. In 2021, HSBC had $10.8 tr ...
,
Lloyds Banking Group, and
NatWest Group).
As well as new entrants to the market, some challenger banks were created following divestment from larger banking groups (
TSB Bank from
Lloyds Banking Group) or wind-down of a failed large bank (
Virgin Money
Virgin Money is a financial services brand used by two independent brand-licensees worldwide from the Virgin Group. Virgin Money branded services are currently available in Australia and the United Kingdom. The brand formerly operated in South A ...
from
Northern Rock).
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.
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 new high street bank for 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
Harvard Law School (Harvard Law or HLS) is the law school of Harvard University, a private research university in Cambridge, Massachusetts. Founded in 1817, it is the oldest continuously operating law school in the United States.
Each c ...
can be accessed online.
To assist new firms to enter the banking market, the PRA, part of the
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government o ...
, 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 companies that received authorisation from the PRA to operate as banks in the UK.
See also
*
Banking in the United Kingdom
*
List of banks in the United Kingdom
Central bank
The Bank of England is the central bank of the United Kingdom.
The Big Four
British banking has been highly consolidated since the early 20th century. Unlike some other major economies, the UK does not have a major stratum of ind ...
*
Neobank
*
Payments bank
Payments banks are new model of banks, conceptualised by the Reserve Bank of India (RBI), which cannot issue credit. These banks can accept a restricted deposit, which is currently limited to ₹200,000 per customer and may be increased further. ...
External links
List of authorised UK start-up banks, by the
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government o ...
References
Banks of the United Kingdom
Online banks
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