Chris Skinner's blog

Shaping the future of finance

Can challenger banks climb the mountain?

Chris Skinner Author Avatar

I’m going to shut up about challenger banks soon, but noted that even the regulator is getting worried about them. After Monzo’s admittance that it may not continue as a going concern if the pandemic continues through 2021, N26 admitting that profit is not their focus, Revolut’s tripling of losses, and more issues out there, it is interesting to see the UK’s Prudential Regulatory Authority (PRA) issuing a warning note.

The PRA drafts the regulatory structure of financial services for the UK. It does not oversee day-to-day operations of financial providers. That’s the job of the FCA, the Financial Conduct Authority.

However, having seen a wave of new entrants into the UK banking scene – Monzo, Starling, Tide, Tandem, Shawbrook, Oaknorth, Aldermore, Monese, Atom, Hammock … – they  are now worried. In a consultation paper issued in July 2020, the PRA states that is appears the neobanks and challenger banks: “are focused on the ambition of becoming authorised and lose the longer term focus of becoming a sustainable business, or fail to appreciate the ongoing need to invest in systems and controls to ensure they remain commensurate with the evolving needs of the business.”

This is interesting. In other words, the fact that a new entrant can get a banking license from the regulator is often seen as the aim and goal in and of itself, but it’s not. The aim should be to create a sustainable business, not just get a license to do business. It’s like doing all the training to be 007 and then sitting at a desk in the office. You’ve got a license to kill, but can’t be bothered killing anything.

This Consultation Paper does not come as a surprise. Over a year ago, the Bank of England was expressing concerns about the new banks. A confidential BoE stress test in June 2019 reviewed 20 of the fastest growing, new UK banks and found that the banks were underestimating potential loan losses in a downturn, lulled by the “relatively benign credit conditions” that existed back then.

“Most fast-growing firms were overly optimistic about the potential impact of a stress scenario on their business,” wrote Melanie Beaman, the BoE’s senior supervisor, in the letter. “We expect all firms to demonstrate effective engagement and challenge by senior management and boards, with stress testing integrated into the business.”

Now we are in that stress scenario, and the regulators are obviously worried. For example, Sarah Breeden, Executive Director of UK Deposit Takers Supervision at the Bank of England, delivered a speech on 22 July 2020 to introduce the Consultation Paper stating:

“We recognise that the winding path up the mountain to become a large player can seem arduous, and strewn with rock faces that appear difficult if not impossible to scale. Barriers to growth are in many ways the inevitable corollary of our lowering the barriers to getting onto the mountain in the first place and of us introducing proportionality into the regime. So ironically our actions to support competition risk creating the very barriers that firms then find it hard to overcome …

“Over the past few years, our focus has been on getting more banks onto the mountain at base camp. But as our next step, our focus has turned to ascending the mountain. And I hope the draft Supervisory Statement we have issued today goes some way to making the path up the mountain easier for you all to navigate.”

Fascinating stuff and a space we are all watching closely.

Climb the mountain safely guys!

Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, 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...

Intelligent Money: Our Future Is Where We Do Not Think About Money, As Our Money Thinks For Us

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

Order now

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


Alex at the Financial Services

Gaping Void's Hugh MacLeod worked with the Finanser