Chris Skinner's blog

Shaping the future of finance

Are challenger banks winning or losing?

Chris Skinner Author Avatar
by

I don’t get The Financial Times editorials these days. Last month, they published a ridiculous article about challenger banks eating the banker’s lunch – which I covered here as being the crumbs off the table of the banker’s lunch – and this month, they publish a totally contrary view that the large banks have steamrollered over the challengers. They don’t even define challengers well. What is a challenger bank? Well, that’s a question I’ve asked and answered before:

A challenger bank is a start-up bank that is able to offer a deposit-taking account with a full banking license

It may still be a prepaid card program or a payments processor or an app or an API, but the fact that it can take deposits with a full banking license makes it a bank. It is a registered bank with a full license from the regulator. It is not a bank that’s been around for ages, but a new start-up bank. I see challenger banks as Starling, Tandem, Monzo, Revolut, Zopa, N26 and Chime therefore. They all have received full banking licenses. So, it is interesting reading this month’s stupidity in the FT.

UK’s bank challengers are fading in fight with big four

This one is written by Nicholas Megaw, a youthful retail banking correspondent who’s been at the FT for four years. First, Nicholas includes Santander as a challenger. Some people do, some don’t, but when a bank has been around since 1857, I would claim it’s not a new challenger. It’s a bank.

He cites Metro Bank, which I would include as a challenger as it started from scratch nine years ago. However, its model is a branch-first model that is seriously questionable, especially when each branch is designed by the founder’s wife for a fee of  millions. This is why Vernon Hill has been forced out of the bank after a decade, in a similar way in which he was forced out of Commerce Bank in the USA. Different issues, similar cause.

Back to Nicholas. He includes Clydesdale and Yorkshire banks in the challengers. Again, an error as they’re not challengers as already mentioned.

In fact, the only useful thing I got out of his article was this line:

In 2000 the top six firms accounted for 80 per cent of personal current accounts, according to the FCA. By 2017, the figure had risen to 87 per cent.

Similar figures to those I cited amongst the big four banks:

Despite the launch of half a dozen new banks in the last few years, the largest lenders still have 77 percent of the market.  They had 69 percent market share in 1999.

In fact, there are typically only three or four big banks in most countries, and they’ve been around for decades. New banks breaking into the top three are unheard of, and might happen but would need a hellvua budget to make it. For example, The Wall Street Journal reports that Goldman Sachs has lost $1.3 billion since launching Marcus, their retail bank, in 2016.

Take note challengers. It’s not easy to break into banking, but not for the reasons Nicholas discusses in the FT. It’s more to do with customer entrenchment and large bank’s capital, history and presence, both physically and digitally. That’s a tough nut to crack. I think it can be cracked, but will take a long time. This is a marathon, not a sprint.

Meantime, a request to Mr Lionel Barber, editor of The Financial Times. You should proof check and monitor your contributions more closely, especially when two articles are published in consecutive months that not only wildly disagree with each other – one saying challengers are wiping the floor whilst the others says they’re down and out – but both holding vacuous and inaccurate content that misses the mark.

Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

What is the future?

Learn more

Learn more about Chris

About Chris Skinner

The Past, Present And Future Of Banking, Finance And Technology

Fintech expert Chris Skinner: countries need digital transformation to remain competitive

Join me on Linkedin

Follow Me on X!

Hire Chris Skinner for dinners, workshops and more

Learn directly from from one of the most influential people in technology, gain insights from the world's most innovative companies, and build a global network.

Chris’s latest book

Chris Skinner’s ‘Digital For Good’ Book Launch Event – CFTE

Top 50 Global Thought Leaders and Influencers on FinTech 2023

Chris Skinner
Commentator, CEO of The Finanser and best-selling author at The Finanser

Thinkers360 Thought Leader

Contact Me

Global Awards

Lifetime Achievement Award

Global 100 - 2024 Winner

Chris Skinner - Financial Markets Advisor of the Year - The Finanser - UK 2023

Best Financial Markets Advisor of the Year 2023

30 Best Regtech Blogs and Websites 2023

Kids creating the future bank | TEDxAthens

Captain Cake and the Candy Crew

Captain Cake Winner of a Golden Mom’s Choice Award

TWO-TIME WINNER OF A MOM’S CHOICE GOLD AWARD!

Alex at the Financial Services

Gaping Void's Hugh MacLeod worked with the Finanser