The UK financial services sector is going through unprecedented upheaval, with new banks being launched all the time.

Banks make their money by attracting savings and lending out the money at a higher rate of interest. New banks need to increase their lending, which means they need to grow deposits – they do this by offering higher rates of interest on savings accounts. Some of these new banks are therefore offering the best interest rates on savings.

It therefore makes sense to move your savings around more often – and that’s exactly where Akoni’s cash management service fits in.

Why challenger banks

The ‘Big Five’ UK banks hold 85% of the personal current account market – Lloyds has about 27% market share,  Barclays and RBS have 18% each, HSBC has 12% and Santander has 10%. The top four banks also hold about 80% of the small business liquidity market.

People used to be loyal to traditional high street banks because they thought bigger institutions were safer. However, this mindset is changing. Here are the main reasons why:

  1. Traditional banking was discredited by a series of scandals
  2. The business model for high street banks was reformed after the financial crisis of 2008, when the UK Government had to prop up the banking system with a massive £1 trillion
  3. Legislative reform led to improved competition within the banking sector (according to Savings Champion, over 1 million retail customers have already taken advantage of easier switching)
  4. Customers witnessed or experienced poor value, bad customer service and mis-selling
  5. Low interest rates are driving savers to shop around
  6. Most High Street banks focus on acquisition of new customers rather than retention of existing customers
  7. The EU and UK Governments provide deposit guarantees relating to the risk of bank failures.  In the UK this is provided by the Financial Services Compensation Scheme (FSCS), with further information provided below.

Introducing the challenger banks

New banks are now challenging the market share held by the five major high street banks. These challenger banks are more specialised, with simpler business models and greater transparency.

To help familiarise you, here’s a brief introduction to just a few of the new entrants in the UK banking sector:


AldemoreAldermore Bank

Independent bank launched in 2009 and based in Peterborough. Among other investors, it was originally backed by private-equity company, AnaCap Financial Partners LLP (who are now planning to launch Abacus – a digital bank), and has since been floated on the stock exchange. CEO is Phillip Monks, who gained 30 years’ experience at Barclays and Arab Bank. Focus is on UK SMEs, with funds lent to small businesses and as mortgages.


Amicus

Amicus

Amicus is a fast-growing specialist financial services group, providing finance for property and other assets, as well as invoice factoring for SMEs. It’s headed by John Wilde, formerly of SME Invoice Finance, JP Morgan and UCB Bank plc. The group was set up in London in 2009, and applied for its banking licence in 2016.


british business bank

British Business Bank

This government-owned and independently managed bank is dedicated to developing smaller businesses. It provides finance to start a business, grow to the next level, or stay ahead of the competition.


Cambridge and CountiesCambridge and Counties Bank

Launched in 2012, this bank was formed by a partnership between Trinity Hall, Cambridge and the Cambridgeshire Local Government Pension Fund. It provides business savings accounts, property finance and asset finance. CEO is Mike Kirsopp, who previously spent 30 years in commercial lending including at Lloyds.


csbaCommunity Savings Bank Association

CSBA aims to create a UK-wide network of customer-owned, regional banks that use local savings to grant loans to local people, community groups, and SMEs. The Chairman is James M Moore, and the initiative is supported by The Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA).

Copernicus Bank

Since 2012, Aidan Brady and Michael Rossman of Danela Ventures Partners Limited have been building a new UK corporate banking platform to target corporate clients. It will run an open ledger/balance sheet and not engage in deposit-based maturity/risk transformation. The launch date has not yet been announced.


HampshireHampshire Community Bank

A new not-for-profit bank launched recently to serve the Hampshire community, headed by Richard Werner, Professor of Banking at Southampton University, and Sir Vince Cable as Chairman. It’s modelled on small local banks such as Sparkasse and Volksbank in Germany, and aims to ‘create credit for productive purposes’ by lending mainly to SMEs.


Metro BankMetro Bank

When Metro Bank launched in 2010, it was the first new independent UK bank on the High Street for more than 100 years. It has 27 branches in London and southeast England, all open seven days a week, and about 360,000 customers. CEO is Craig Donaldson, who used to hold senior roles with RBS, Barclays and HBOS. Funds are lent as mortgages, personal loans and credit cards in the UK.


oaknorthOakNorth Bank

OakNorth is run by entrepreneurs not bankers, and provides funding for business and property. The CEO is Rishi Khosla, and the Chairman is Cyrus Ardalan.


Paragon BankParagon Bank

Based in Solihull, Paragon Bank launched in 2014 after being a buy-to-let mortgage lender for years. It’s quoted on the stock market. MD, Richard Doe, was previously CEO of ING Direct UK. Funds are lent to UK borrowers and as car loans.


RedwoodRedwood Bank

Redwood was co-founded by Jonathan Rowland and Gary Wilkinson to provide SMEs with commercial mortgages and deposit accounts. The bank is based on the border between Bedfordshire and Hertfordshire.


ShawbrookShawbrook Bank

Launched in 2011 and based in Essex, this UK bank is owned by the Special Opportunities Fund (SOF). CEO is is Richard Pyman, a banker for 20 years. The management team are formerly from RBS Group. Funds are lent to individuals and UK SMEs.


FSCSFinancial Services Compensation Scheme (FSCS)

This free and independent scheme was set up to boost confidence in small banks. It means that customers will be compensated if UK-authorised financial services firms stop trading.

The FSCS protects deposits and savings up to £85k, as well as investment business, home finance, insurance policies and insurance broking. If your savings balance is temporarily high due to a specified ‘life event’, the FSCS protects up to £1m for up to six months.

Note that some EU banks are not UK-authorised as they are covered by their own scheme instead. You should be aware that cash saved in those banks is not protected under the FSCS and will usually be covered by the home country government guarantee.

Visit Akoni Hub’s latest rates to view leading business deposit products.

 

Akoni helps businesses make the most of their cash. Follow us on Twitter @akonihub or connect with us here.

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About the Author jackiebarrie

Writing without waffle at jackiebarrie.com