Challenger Banks

Tall buildings in a city

The pace of new challengers coming into the market shows no sign of slowing. Retail savings as a source of funding is one opportunity for these firms.

Challenger Banks: At a glance

The term ‘challenger bank’ is widely used for any form of bank that is not one of the “Big 5”. ‘Challengers’ come in all sorts of shapes and sizes. In their ‘Framing New Futures’ report, KPMG introduced three types of challenger. The larger Classic challengers who can exploit scale, often through branch networks; smaller Contemporary challengers, who are taking advantage of new technologies and achieving scale through defined services and products; and Nouveau challengers who are using cutting edge technologies to provide services to underserved markets. Whatever they look like, these banks are providing additional competition and some form of ‘challenge’ to existing providers. The pace of new challengers coming into the market shows no sign of slowing, helped by a desire from the government to encourage new entrants and increase competition further.

Challenge for the new challenger banks

Build customer loyalty
Manage skills gap
Generate income

After overcoming consumer reservations around trust, and investing in brand awareness tactics to build loyalty, ‘Challengers’ need to create a sustainable business model. One that will raise funds and generate profit. Accessing retail savings as a source of funding is one opportunity for these firms. By partnering with us for the operational delivery of their savings business, clients can focus more on their core income generating lending activities.

Retail savings as an attractive source of funding

Retail savings is a more stable source of funding as recognised through a firm’s Net Stable Funding Ratio, where more favourable treatment is given to retail savings as a high quality source. With rates still at historically low levels, retail savings can offer a low cost of funding compared to other more expensive forms which some entities may have accessed previously as a ‘non bank’ lender. Having a banking licence, and being able to tap into the savings market, may also add to shareholder value.

A compliant white labelled solution for challengers

We work with challenger banks who wish to enter the savings market, providing a full end-to-end savings management service. We manage all operational and customer activity on behalf of the client.

Being entrusted with the public’s savings comes with responsibility and firms need to be fully authorised by the Prudential Regulation Authority (PRA) and regulated by them and the Financial Conduct Authority (FCA). While the government and regulators have been keen to reduce the barriers to entry for prospective banks and encourage greater competition, there is still a high bar for applicants to pass before being authorised and allowed to accept deposits.

We play an invaluable role in helping clients through the application process for their banking licence, providing information in areas such as customer journeys and ensuring that our own implementation plan is aligned with the timeframe for the regulatory process.

Our existing challenger bank clients typically offer a broad savings product range and their products regularly feature on best buy tables. A number of our clients have won multiple industry awards which is testament to the service we provide.

We de-risk entry for many challengers, helping them get to market quickly with a service that is fully compliant.

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