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.
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.