Challenger banks are small, recently created retail banks that compete directly with the longer-established banks in the UK, [1] [2] [3] sometimes by specialising in areas underserved by the "big four" banks (Barclays, HSBC, Lloyds Banking Group, and NatWest Group). [3] 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 from Northern Rock). [4] [5]
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. [6]
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. [7]
In the wake of the 2008 financial crisis, it was decided to open the market up to new banks. After a period of consultation, [8] 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. [9]
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. [10]
This list contains companies that received authorisation from the PRA to operate as banks in the UK.
| Bank | Established | Status |
|---|---|---|
| Atom Bank [11] | 2015 | App-based bank offering savings and mortgages. |
| Monzo [12] | 2016 | One of the early app-based banks, Monzo had 3.5 million customers as of February, 2020. |
| Metro Bank [13] | 2010 | The first high street bank to launch in the UK in over 150 years. In 2019 it lost £800m (40%) of its company value as the result of an accounting error in which its commercial loans were misclassified. [14] An investigation by the PRA resulted in the bank being fined £5.38m by the PRA in December 2021. [15] In November 2021, it entered talks with the Carlyle Group concerning a possible takeover bid. [16] |
| N26 [17] | 2016 | A German app-based bank which ceased to do business in the UK in April 2020. The UK's exit from the European Union terminated the ability to "passport" a European banking licence, necessitating applying for a British banking licence to continue which N26 decided would be too complex and expensive. [18] |
| OakNorth Bank [19] | 2015 | Provides business and property loans to SMEs. |
| Perenna Bank Plc | 2018 (2023 [20] ) | Providing 'fixed for life' long term mortgages [21] |
| Shawbrook Bank [22] | 2011 | Provides savings, business finance, property finance, personal loans. |
| Starling Bank [23] | 2014 | Starling Bank was founded by former Allied Irish Banks COO, Anne Boden, in January 2014. |
| Tandem [24] | 2015 | The former Harrods Bank, founded in 1893, which was acquired in January 2018 by fintech startup Tandem Money and renamed. |
| Tide | 2015 | A UK financial technology company specialising in accounts for small and medium-sized businesses, offering FSCS protected bank accounts provided by ClearBank. |
| The Bank of London [25] | 2020 | A universal bank. The second new principal clearing bank set up in over 250 years, it is also the first bank to attain unicorn status upon debut, after achieving a valuation of over $1.1B. [26] [27] |
| Virgin Money [28] | 1995 | 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 (NAB) in February 2016, when it was called CYBG plc. |
Virgin Money is a banking and financial services brand operating in the United Kingdom.
Zopa Bank Ltd. is a British online bank which offers deposit accounts, personal loans and credit cards. It began as the world's first peer-to-peer lending company in 2005 and gained a full banking licence in 2020. The peer-to-peer side of its business closed in December 2021.
Bank and Clients plc was a British private bank, which was formed by combining: Church House Trust, a retail bank founded in 1978 and Ocean Capital, a specialist corporate lender founded in 2002. B&C was based in London, England.
The Prudential Regulation Authority (PRA) is a United Kingdom financial services regulatory body, formed as one of the successors to the Financial Services Authority (FSA). The authority is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. It sets standards and supervises financial institutions at the level of the individual firm. Although it was initially structured as a limited company wholly owned by the Bank of England, the PRA's functions have now been taken over by the Bank and are exercised through the Prudential Regulation Committee. The company has since been liquidated.
Metro Bank PLC is a retail and commercial bank operating in the United Kingdom, founded by Anthony Thomson and Vernon Hill in 2010. At its launch it was the first new high street bank to launch in the United Kingdom in over 150 years. It is listed on the London Stock Exchange.
Stripe, Inc. is an Irish-American multinational financial services and software as a service (SaaS) company dual-headquartered in South San Francisco, California, United States and Dublin, Ireland. The company primarily offers payment-processing software and application programming interfaces for e-commerce websites and mobile applications.
Wise is a UK-based foreign exchange financial technology company founded by Estonian businessmen Kristo Käärmann and Taavet Hinrikus in January 2011. Wise specializes in cross-border payment transfers. As of 2023, it offers three main products: Wise Account, Wise Business, and Wise Platform.
Starling Bank is a British bank, occasionally referred to as a digital challenger bank or neobank, providing current and business bank accounts in the United Kingdom. Starling Bank is a licensed and regulated bank, founded by former Allied Irish Banks COO, Anne Boden, in January 2014. Since its founding, it has received over £500m of funding.
Revolut is a global neobank and financial technology company that offers banking services for retail customers and businesses. Headquartered in London, it was founded in 2015 by Nikolay Storonsky and Vlad Yatsenko. It offers products including banking services, currency exchange, debit and credit cards virtual cards, Apple Pay, interest-bearing "vaults", personal loans and BNPL, stock trading, crypto, commodities, human resources and other services.
OakNorth Bank is a UK bank for scaling businesses that provides loans and both business and personal savings accounts. The bank, which gained regulatory approval in early 2015, was founded by entrepreneurs Rishi Khosla and Joel Perlman, who had previously founded Copal Amba. The bank focuses on providing loans of £0.5m–£25m as well as savings accounts.
Monzo Bank Limited, trading as Monzo, is a British online bank based in London, England. Monzo was one of the earliest of a number of new app-based challenger banks in the UK.
Tandem Money is a company that owns Tandem Bank, one of the UK's original challenger banks. Tandem Bank is a digital bank with a mobile app, and no branches.
Atom Bank plc is a retail bank in the United Kingdom. It is the United Kingdom's first bank built for smartphone or tablet, without any branches, and the first digital-only challenger bank to be granted a full UK regulatory licence. The company is based in Durham, England.
Thomas Benjamin Blomfield is a British entrepreneur and a Group Partner at Y Combinator.
Curve is a payment card that aggregates multiple payment cards through its accompanying mobile app, allowing a user to make payments and withdrawals from a single card. It lets you "switch the bank card you paid with after each transaction is complete." Curve named this feature "Back in time".
Anne Elizabeth Boden is a Welsh tech entrepreneur. She is the founder and former CEO of Starling Bank, a UK mobile-only bank, Boden is the first woman to found a British bank. In 2018, she received an MBE for services to financial technology.
Tide is a UK financial technology company providing mobile-first banking services for small and medium-sized enterprises. It enables businesses to set up a current account and get instant access to various financial services.
Freetrade is a UK-based financial technology company which offers a freemium share dealing service. The company was founded in 2016 and launched an iOS app in October 2018, followed by an Android version in April 2019. In October 2021 the company surpassed one million registered users, with quarterly trading volumes as of March 2021 of over £1 billion. As of November 2021 Freetrade has over £1 billion of assets under administration.
BUX is a European mobile brokerage company, based in Amsterdam and London. Retail investors buy shares, ETFs and cryptocurrency through the BUX app. BUX allows users CFD trading through its Stryk app and crypto trading using the BUX Crypto platform.
GoCardless is a fintech company that specialises in bank payments including recurring payments, Direct Debit processing and Open Banking. GoCardless is headquartered in London.
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